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Yellow Media just reaffirmed its share buyback and dividend. It will likely be the final, fatal mistake.
Boards hate cutting dividends. They view it as an admission of failure.Thanks in part to dumb past decisions, this dividend should be cut or eliminated. But it won’t happen.
That’s mistake number one, which leads to a second mistake: buying back stock. In the board’s eyes this is a great use of cash because given the size of the dividend, buying and cancelling shares makes for a “guaranteed” 17% return (meaning for every $1 you spend buying back stock YPG saves 17 cents in annual dividend payments).
Only it’s not guaranteed nor is it a 17% return since that dividend is unsustainable given the withering profits (on top of which the company is looking at a $250 million tax bill next year, from $42 million this year).
The board says the stock price “doesn’t adequately reflect business fundamentals and future prospects of the business.”
Strangely, the insiders themselves aren’t buying any stock. Some are selling.