Wednesday, October 7, 2009

Dividend - Real Case

In this article from Bloomberg, I read that ConocoPhillips wants to sell assets amounting to $10 bn to reduce debt and improve profitability ratios.
Then Conoco does something funny - it increases dividend for the quarter from 47 cents to 50 cents. A quick calculation based on outstanding shares (1.48 bn shares) shows that 50 cents amounts to $740 mn. This is 7.4% of the assets they want to sell.
So let's try and understand something; the company prefers paying out $740 mn of dividend to preserving $740 mn of assets.

The company gave away a permanent source of capital, sold fixed assets and paid off temporary debt. I prefer not to say more.

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