NEW YORK — Weyerhaeuser Co., which has been hemorrhaging cash because of the moribund U.S. housing market, said Tuesday it is cutting its quarterly dividend again, this time by 80 percent.
The timber and wood products company is lowering its payout to 5 cents per share from 25 cents. That follows a reduction last December to 25 cents from 60 cents. The two decreases will help the Federal Way company preserve cash as the recession hurts demand for its plywood and lumber and rivals enjoy a lighter tax burden.
The collapse in housing construction has hammered the revenue of companies like Weyerhaeuser, whose sales depends on housing. In its latest quarter, overall sales fell 37 percent while sales of wood products slid 44 percent.
“They are not generating enough cash to service their debt let alone pay the dividend they had,” said D.A. Davidson analyst Steven Chercover. “So it makes sense to cut the dividend.”
Besides the recession-driven housing downturn, Weyerhaeuser pays higher taxes than rivals that are structured as real estate investment trusts, or REITs. Weyerhaeuser pays a 35 percent tax on income and then shareholders pay another 15 percent tax on dividends. But REITs like Plum Creek Timber Co. Inc. pay no income tax and its shareholders merely pay a long-term capital gains tax of 15 percent on dividends.
Weyerhaeuser’s higher taxes hamper both earnings and share price performance, and it is widely expected to convert to REIT status, perhaps next year.
However, such a REIT conversion will require a large, though as-yet undetermined, payout to shareholders, something CEO Dan Fulton alluded to when he announced the dividend decrease.
The move was undertaken to enhance “financial flexibility, including a possible REIT conversion should the board make that decision in the future,” he said.
Wall Street offered a measured endorsement of the move.
“Cutting the dividend twice in such a short period of time is clearly disappointing,” UBS analyst Gail S. Glazerman said. “However, company cash flow was very weak in the first quarter, so the move is understandable.”
The reduced dividend is payable on Aug. 31 to shareholders of record at the close of business July 31, said Weyerhaeuser.
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