Sulzbergers Face the Dividend Music

The New York Times Company finally faced up to reality yesterday and slashed its dividend. It’s something it should have done long ago, but it’s better late than never.

Just last year, the Times raised its dividend by about a third even as its financial situation continued to deteriorate. I wrote this in July in a column about the baffling staying power of newspaper-industry dividends:

The struggling New York Times Company, which like everyone else has taken the ax to its news staff, dropped $125 million in “excess” cash on its investors last year. That surely would have made a difference in its newsroom, which has a budget of some $200 million.

While the Times didn’t eliminate the dividend as it should have, it did cut it 74 percent, which will save $98 million a year. A tip of the hat to Richard Perez-Pena for good coverage of his own firm:

The cut reverses a years-long pattern of regular increases, even as the share price fell. In the spring of 2007, the board raised the dividend to 23 cents, from 17.5 cents, a move that many analysts said was unwise in light of the sharp downturn in the newspaper industry.

He reports the stock is down 89 percent from its peak in 2002, and he points out that the dividends help support the Sulzberger clan, which is surely why it took so long to cut it.

To put that in context, check out the good reporting from Joe Hagan in New York last month:

In order to keep the family—and shareholders—happier in these lean financial times, Sulzberger has quietly ramped up the amount of cash they receive in a quarterly cash dividend. This, more than the sale of stock, is the source of the Ochs-Sulzbergers’ working wealth. Sulzberger and CEO Janet Robinson raised the dividend by an extraordinary 31 percent last year—even as the stock price declined. Of the $132 million a year the paper gives to shareholders, about $25 million of it now goes directly into the coffers of the Ochs-Sulzberger trusts.

But the payoff exacts a harsh price: The company is going deeper into debt to pay the high-yield dividend. In the last four quarters, the paper has made less money than it has paid in dividends…

You just can’t run a business like it’s your personal piggy bank, as Dow Jones’ Bancrofts found out.

That the Times Company is finally figuring that out is good news for it and for the Times. Now for the rest of the industry, I’ll rerun what I said this summer:

Why pay dividends at all? After all, newspapers are not and probably never will be again the monopolistic cash machines of yesteryear. They’re hardly in the “widows and orphans” stocks class anymore with predictable cash streams like utilities or, cough, banks…

Whatever, newspapers ought to end or at the very least severely curtail their dividends—and put the cash to more creative use.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.