Doubts About New York Times' Dividend

This column was originally published on RealMoney on March 23 at 2:30 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

The New York Times (NYT Quote) boldly boosted its dividend Thursday night, but in light of its latest disappointing results, the bigger payout may not pan out in the long run.

The 31% hike, to 23 cents a share, bumps the yield up to 3.8%, placing the dividend at the high end of the industry range and a full 2 percentage points ahead of the yield of the average stock in the S&P 500. Dividend hikes aren't new for the Times, which has boosted its payout every year since 1996, but each previous annual increase was made just a penny at a time.

As a result of the news, New York Times stock is up about 3% on the session, recently trading at roughly $24. Investors at the close of trading May 29 will qualify for the June 23 payment, but I'm not sure how sustainable the new dividend is.

Earlier this week, New York Times said February circulation was up 0.5%, but overall revenue still declined 3.6% year-over-year. Online ad sales from New York Times' About.com Web site grew 23% from the previous year, but totaled just $6.7 million.

February monthly ad sales from continuing operations fell 6% from the previous year, and the third-largest newspaper publisher blamed a decline in real estate and auto classifieds.

Classified ads are the sweet spot, a major profit center for newspapers, and there's no visibility of a material recovery there in the near term. The ongoing decline in newspaper ad revenue stems from not only the continued migration to online listings, but also the increased competition within the industry, which is driving down pricing across the board.

According to the consensus analyst estimate, New York Times' 2007 earnings are expected to fall 21% year-over-year to $1.13 a share. This would mark the fourth straight annual profit drop at the company, and the worse news for investors is that the pace of this decline is accelerating, despite several rounds of internal cost-cutting.