Dynegy ( DYN) elected to eliminate its once-generous common stock dividend in an effort to preserve precious cash. In a regulatory filing Monday, the Houston energy company revealed that it will pay no dividend on its Class A or Class B common stock for the third quarter -- and left the door wide open for further cuts. The company had been paying out 7.5 cents a quarter.
"Payments of dividends for subsequent periods will be in the discretion of the board of directors, but Dynegy does not foresee reinstating the dividend in the near term," Dynegy stated in an 8-K filing Monday. The stock slid 8.5% to $1.61 a share on news of the dividend cut. But John Olson, an analyst at Sanders Morris Harris in Houston, said the cut should come as no surprise to investors. "It's about par for the course for a company with a credit situation like Dynegy has," said Olson, who doesn't own or rate the stock. "It will save them some money, no question about it." Olson said the move would save Dynegy $126 million this year. Dynegy is attempting to strengthen its balance sheet by $2 billion after barely escaping bankruptcy during a cash crunch last month. Dynegy is just the latest in a string of energy merchants to cut dividends in the wake of an unprecedented industry meltdown. Williams ( WMB), which has also danced dangerously close to bankruptcy, slashed its own dividend -- once among the most generous in the sector -- to a penny last month. Williams' stock continued a recent pattern of tracking Dynegy's on Monday, falling 4.3% to $2.70 a share in early morning trading.