NEW YORK (TheStreet) - Loews Corp. (L), the holding company with majority ownership of CNA Financial (CNA - Get Report), Diamond Offshore Drilling (DO) and a hotels business, is exposed to Boardwalk Pipeline's (BWP - Get Report) falling shares after the midstream master limited partnership (MLP) cut its dividend by about 80%.
Loews owns about 57% of Boardwalk Pipeline's shares, meaning that the company's equity ownership stake fell by more than $1 billion on Monday after Boardwalk Pipeline said it would cut its quarterly dividend to 10 cent from the company's previous 53-cent distribution in November.
The falling value of Boardwalk Pipeline combined with sharply lower quarterly distributions could impact Loews 2014 earnings. In 2013, the midstream MLP contributed nearly $300 million to Loews' bottom line, mostly from the company's high quarterly dividend. Now, annual distributions of just 40 cents are poised to bring in only $50 million a year to Loews as a majority shareholder.
CNA Financial, Loews' biggest investment, however, said on Monday it would sell a life insurance unit for $615 million, leading to a surge in the company's stock. CNA Financial shares rose more than 7% to a new five-year high of $42.67 in afternoon trading. CNA also announced a $1-a-share special dividend and a 25% increase to the company's quarterly dividend.
The Chicago-based insurer's share gains and rising capital returns to investor are likely to help Loews offset some of the impact of Boardwalk Pipeline's Monday tumble. Loews owns nearly 90% of CNA Financial's outstanding shares, meaning the company will see most of the cash from a special dividend and dividend increase.
On Monday, Loews reported a fourth-quarter loss on a $398 million goodwill impairment charge to the company's HighMount Exploration & Production business, a result of low market prices for natural gas and natural gas liquids and negative reserve revisions.
Overall, Loews reported a $198 million loss for the fourth quarter on about $4 billion in quarterly revenue. For the full year, the company reported $15 billion in revenue and a net profit of $595 million.
Some of the issues that caused fourth-quarter impairments at HighMount also caused Boardwalk Pipeline to cut its dividend. Boardwalk said it decided to cut its dividend to strengthen the company's balance sheet and to react to unfavorable market fundamentals in the natural gas transportation and storage market.
Loews said on a conference call with analysts that CNA Financial's life insurance unit sale and special dividend were unrelated to Boardwalk Pipeline's dividend cut. The company also said Boardwalk Pipeline cut its dividend from a "position of strength."
Analysts at Deutsche Bank and Credit Suisse cut Boardwalk Pipeline to "sell" on its dividend cut and said the move and its magnitude were unexpected. In December, Hedgeye energy analyst Kevin Kaiser questioned whether Boardwalk Pipeline had the earnings and financial strength to maintain its dividend.