Countrywide Rolls Dividend Dice

Investors are wondering how much longer they can count on Countrywide Financial's ( CFC) dividend.

The big lender's shares swooned to another 52-week low Wednesday amid deepening problems in the mortgage and housing markets. The stock has dropped 70% off its February highs to lows not seen since March 2003.

Wall Street expects big losses -- $1.26 a share, going by the Thomson Financial analyst consensus estimate -- when the Calabasas, Calif., company reports third-quarter earnings Friday morning. But that's not all: Fred Cannon, an analyst at Keefe Bruyette & Woods, is expecting the company to suspend its 15-cent quarterly dividend as well.

Countrywide didn't comment, but Cannon says the move -- which stands to save Countrywide some $350 million annually -- "would be the prudent thing to do."

Citing liquidity and capital issues at the company, he continues, "In a liquidity crisis, cash is a good thing to keep."

To be sure, Countrywide's dividend isn't very sizable when compared to other bank-oriented lenders such as Washington Mutual ( WM) or Bank of America ( BAC). Nor do investors typically look to Countrywide when seeking income from dividend payments, observers say.

Still, a dividend cut would be another black eye for Countrywide at a time when it has been in the headlines for all the wrong reasons.

CEO Angelo Mozilo has been pilloried for selling millions of dollars in company stock even as Countrywide shares plunge. Some investors have taken to calling for his resignation, while others have questioned Countrywide's business practices. Adding to the pressure, regulators have begun looking at the propriety of Mozilo's stock sales.

In response, the company this week unveiled a plan to refinance or modify $16 billion worth of loans to homeowners who otherwise might default. Mozilo has defended his stock-sale plans.

And given Countrywide's straits, any little bit of extra cash could help the ailing lender.

Suspending the dividend is "probably not going to be a critical factor in liquidity, but certainly it's a contributing factor," Cannon says.

Still, other observers warn that if Countrywide were to eliminate its dividend, investors might flee.

"It's usually the last thing people like to cut," says Matt Kelmon, president of the Kelmoore funds in Palo Alto, Calif. Cutting the dividend is "a real sign of weakness at a company. A share buyback would stop first."

Indeed, Thornburg Mortgage ( TMA) shares tumbled 11% in a day last week after the struggling jumbo lender said it was suspending its dividend and posted a third-quarter loss.

Analysts also expressed concern that WaMu's dividend was in danger after the Seattle bank reported dismal earnings. For the first time in 12 years, WaMu did not increase its annual dividend, though management said during a conference call that it will continue to review its dividend policy.

Erin Swanson, an equity analyst at Morningstar, shares a similar concern.

"Countrywide has been working very hard to secure more stabile funding sources," Swanson says. Countrywide drew down an entire $11.5 billion credit line in August and said it would switch its funding of mortgage loans to its bank unit from a market-based operation. Later that month, the lender also made a deal to sell Bank of America ( BAC) $2 billion in preferred stock."If they were to cut their dividend that would be a sign of capital problems," Swanson says, "and in our opinion that's something that Countrywide would do their best to avoid at this point -- especially given all the negative sentiment that is surrounding the company, the stock and management."

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