'NYT' Dilemma: Cut Dividend or Get Junked

How long can The New York Times Co. afford to buy shareholders' goodwill? Bloomberg reports today that the company "faces increased financial pressure to cut its dividend as credit quality deteriorates amid record advertising declines." Moody's is threatening to downgrade the Times to a junk rating unless it does something about its anemic cash flow. The current quarterly payout of 23 cents gobbles up $132 million a year that could otherwise be reinvested or used to pay down debt.

The situation reminds me of something former Wall Street Journal managing editor Paul Steiger said when he spoke to the Medill Club a few weeks ago. Noting that the Times Co. had just announced earnings from continuing operations of 15 cents a share, he observed, "When you're borrowing money to pay your dividends, that's my definition of losing sustainability."

Irony alert: Here's what Times publisher Arthur Sulzberger said back in March of last year when the company upped its dividend from 17.5 cents a share: "The strong cash flow of the company and our current financial position, with the upcoming sale of our broadcast unit and radio station, give us the ability to return more capital to shareholders."

Update: It appears that the calls for a dividend reduction have pushed down the stock price.