Meredith Whitney of CIBC world markets wrote yesterday that Citicorp may be forced to cut its dividend or sell assets to prevent a liquidity crisis. But Citibank sure isn't acting like it's having problems. Today it announced the acquisition of hedge fund Carlton Hill.
The company pays about $10 billion dollars in dividends per year ($2.16 per share on approximately 5 billion shares). It is projected to earn $20 billion next year, supplying plenty of cash to pay the dividend and expand the company.
The only thing that could force the bank to cuts its dividend would be a collapse in the CDO market. CEO Chuck Prince has gone on public record saying that Citicorp expected to see that market stabilize and that Q4 will be better than Q3.
Certainly, nothing Citi is doing detracts from that point of view. They haven't stopped their acquistion spree and continue to invest in their businesses.
So, at today's current stock price of 38.88 Citi is paying a 5.10% dividend. If you believe the worst of the credit crunch is over, this represents a great investment. If you think the worst is yet to come, wait a bit longer.
Join my discussion on the credit crunch and whether the worst has passed.
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