U.S. Government Rescues Citigroup
In an announcement late Sunday, federal officials said the government would invest an additional $20 billion in beleaguered financial services company
The FDIC will also guarantee losses on more than $300 billion in troubled Citigroup assets.
In exchange for the $20 billion injection, the government will receive $27 billion worth of preferred shares of Citigroup stock, which will pay an 8% annual dividend rate. The government will also receive warrants to purchase an additional $2.7 billion worth of Citigroup shares in the future.
In pursuant to the agreement, Citigroup will be prohibited from paying out a dividend of more than a penny per share for the next three years, and will also face limits on executive compensation.
Citigroup had already received $25 billion worth of federal bailout money back in October, as part of the initial round of TARP handouts.
Citigroup stock saw a steady decline throughout last week, dropping over 65%. On Friday, while the
closed up 494 points, Citigroup closed down about 30%, to $3.77 per share. That price action led many to believe that a federal bailout would be necessary over the weekend.
First things first: We can all kiss Citigroup's dividend goodbye, since the company is now federally prohibited from paying more than 1 cent per quarter in dividends. This type of scenario is one reason why we've consistently urged dividend investors to avoid financial stocks sporting extremely high dividend yields.
With its large deposit base and all the sovereign wealth money tied into Citi, it makes sense the government wasn't willing to let the troubled finance company fail.
In the end, we wouldn't be surprised if this latest deal were a prelude to a merger between Citi and another firm, perhaps a company like
Citigroup is not recommended at this time, holding a Dividend.com Rating of 2.6 out of 5 stars.
Fidelity National Walks Away From LandAmerica Merger
Fidelity National Financial
has canceled its plans to acquire title insurer
LandAmerica Financial Group
, citing its "contractual due diligence termination right."
Under the terms of the deal, which the boards of both companies had approved, Fidelity National Financial was to pay 0.993 share for each LandAmerica share. LandAmerica had recently reported that its third-quarter net loss widened to $39.45 a share from $1.28 a share in the year-earlier period, while revenue fell 30% to $631.8 million.
The bad earnings from LandAmerica may have been the deciding factor in Fidelity National's decision to terminate the deal. It was an interesting decision to attempt to combine both companies, and we are not sure how much information Fidelity received on LandAmerica's financials at this point, but the result of the termination puts LandAmerica in a vulnerable position. We would avoid shares of both companies for now.
Fidelity National Financial and LandAmerica Financial Group are not on our "Recommended" list at this time.
Johnson & Johnson to Buy Omrix Biopharmaceuticals
Johnson & Johnson
said Monday it will pay $438 million for
as the company looks to expand its surgical product unit.
Johnson & Johnson will pay $25 per share in cash for the shares, scheduled to close at the end of December. The offer is an 18% premium over Omrix's closing price of $21.16 Friday.
The shares of Omrix had a big move Friday, so the rumor must have started leaking somewhere. This is an area of the market that the
will need to carefully scan. The last thing the market needs to do here is give the feel that Insider Trading is making a comeback. Market participants are so eager for a big score that there could be a tendency to get a bit aggressive. Investors must never trade on an insider tip. We had removed Johnson & Johnson from our "Recommended" list recently. The company has a 2.84% dividend yield, based on Friday's closing stock price of $58.35.
Johnson & Johnson is not recommended at this time, holding a Dividend.com Rating of 3.4 out of 5 stars.
Xerox Says it Will Meet the Lower End of Estimates
announced ahead of an investor meeting in New York that it expects profit of between $1 and $1.25 per share next year.
The company had originally predicted 2009 EPS of between $1.45 and $1.50. Management said the recent restructuring, which involves cutting 3,000 jobs, will provide the company greater flexibility to operate even more efficiently and effectively in an uncertain economic environment.
We have avoided shares of Xerox since our early June coverage began, when the stock was trading at $13.22. The company has a 3.24% dividend yield, based on Friday's closing stock price of $5.25. The stock is approaching its historic lows, which is around the $4 price range. We would prefer investors wait for shares to stabilize a bit higher from here, before considering any long-term investment positions.
Xerox is not recommended at this time, holding a Dividend.com Rating of 3.1 out of 5 stars.
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At the time of publication, the author had no positions in stocks mentioned, although positions may change at any time.
Tom Reese and Paul Rubillo are senior editors of Dividend.com. Visit Dividend.com for more dividend stock ratings, picks, news, and analysis for long-term and income-seeking investors.