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Is It Safe? Weyerhaeuser Dividends in Doubt

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Weyerhaeuser (WY - Get Report) has slashed its dividend by more than half, but it's unclear if the company will be able to generate enough profit to keep paying it.

Analysts expect the lumber producer to lose money at least through next year. If the homebuilding industry doesn't recover, the company might have to reduce or eliminate quarterly payments to shareholders. Last month, Weyerhaeuser slashed its dividend to 25 cents a share from 60 cents.

TheStreet.com Ratings

The collapse of the U.S. housing market is sapping earnings at Weyerhaeuser. The company lost $8.61 a share last year after losing $1.15 in 2007. Analysts estimate it will lose $2.20 a share this year and 75 cents in 2010. A prolonged slump in homebuilding could extend the company's streak.

Investors had come to expect growing dividends from the Washington-based company, which has boosted its payout 5.1% a year on average for the past five years, according to Bloomberg data. For the past 12 months, Weyerhaeuser's dividend yield was 5.7%, outpacing the 3.3% average of companies in the S&P 500 index. The yield is projected to drop to 2.8% in the next year.

Weyerhaeuser executives face a simple question: Should the company keep giving shareholders 25-cent dividends each quarter if it lacks the income to finance the payments?

Weyerhaeuser's stock price, which topped $85 a share in March 2007, fell below $20 last month. The shares have plunged 44% in the past year. They tumbled more than the S&P 500, which sank 38%, but outperformed the 50% drop of S&P's index of timber companies.

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