Thursday, October 18, 2007

WaMu Dividend Is It OK?

WaMu just released earnings and conference call transcript is available on The first analyst question was right on the money. Paul Miller - Friedman Billings Ramsey & Co. inquired as to if the dividend is stable or safe. The board declared a dividend which looked normal. The earnings are well off the mark which was expected. Guidance was down which is realistic. But the board keeps the dividend going. Boards will rely on managements recommendations but ultimately are responsible to the shareholders.

If you adhere to traditional dividend policy assessment anything over a 5% yield is suspect. WaMu is north of 6%. Also the dividend payout ratio indicates they are needing to cannibalize essential body parts to maintain the payout ratio. Many fine companies have been able to continue paying dividends during lean times. When earnings swing back its all good and everyone just knew it was going to work.

At 6% yield, the question is do you believe? The regulators will allow you to pay out uncovered dividends for only so long. Comments about the mortgage market indicate a long hard winter with no promise of an early spring. So we change the question to: How long do you have to believe?

So far only one insider has bought 1000 shares in early Aug. Michael K Murphy the retired Chairman and CEO of CPM Development Corporation, a construction materials manufacturer and the parent company of Central Pre-Mix Concrete Company and Inland Asphalt Company. Has this old salt seen cycles before?