R.R. Donnelley & Sons: Is A Dividend Cut Imminent?


R.R. Donnelley’s (RRD) yield is above 9% pointing to a lack of confidence reflected in the market that the dividend is sustainable. Is a cut Imminent? To get a better handle on the question we’ll examine some important issues that impact the sustainability of the dividend. They are:

  • Pension liabilities
  • Debt
  • Growth

Pension Liabilities

RRD’s pension was $1 billion underfunded at the end of 2011, approximately a 100% increase over 2010. On November 2, 2011, the Company announced a freeze on further benefit accruals under all of its U.S. pension plans as of December 31, 2011. Beginning January 1, 2012, participants ceased earning additional benefits under the plans and no new participants will enter these plans, limiting future liabilities. The following projection shows the issue is manageable but the unfunded liability will take years to wind down unless actual return rates are higher and/or the company increases their contributions. The pension does not include the 401(k) and retirement plans. The company modeled an expected rate of return in excess of 8% in the past. This is aggressive and higher than the discount rate so we ran the analysis with a 6% return.

…Click here to continue to the full article at SA…

Advertisements

About IIEX

Click "About" in the menu at the top for more information about the author. We also have a page at "Seeking Alpha" ( http://seekingalpha.com/author/david-klein ). Please Click on and read the "Disclaimer" in the menu at the top. Have a question? Contact us at iiex@live.com.
This entry was posted in RRD, Stocks and tagged , , , , . Bookmark the permalink.

2 Responses to R.R. Donnelley & Sons: Is A Dividend Cut Imminent?

  1. Eugene says:

    It’s hard to find educated people on this topic, but you sound like you recognize what you’re talking about! Thanks

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s