Aug 6 (Reuters) - Merrill Lynch & Co Inc MER.N will have to cut its common dividend per share 64 percent by 2010 as the high dividend payout will hurt the U.S. investment bank and brokerage’s long-term growth prospects, analyst Brad Hintz of Sanford C. Bernstein said.
Merrill should reduce its total dividend payout ratio to about 30 percent by 2010, he said.
To reach this level, the company would have to cut its common dividend to 50 cents per share from its current level of $1.40 a share, the analyst said.
The high dividend payout ratio will place constraints on the company’s inventory and balance sheet capacity, and limit its ability to compete effectively in fixed-income proprietary trading, Hintz said.
Merrill’s dividend payout has remained unchanged despite recent capital raises, resulting in an increase in its total annual dividend obligations to $2.90 billion from $1.49 billion, Hintz said.
He estimates Merrill’s common shareholder base has been diluted by about 87 percent in the past nine months.
Last week, Merrill sold more than $8.55 billion in common shares to boost its capital after selling $30.6 billion in repackaged debt at a fire-sale price. “With this new common share issuance and the firm’s substantial amount of preferred stock outstanding, we calculate that Merrill Lynch will have to outlay $2.85 billion of total dividends each year,” Hintz said.
On Tuesday, Ladenburg, Thalmann & Co analyst Richard Bove said Merrill may announce a dividend cut soon as the dividend on the common stock was “clearly a burden” for the company.
Hintz rates Merrill “market perform” and has a price target of $28 on the stock.
Shares of Merrill closed at $28.22 Tuesday on the New York Stock Exchange. (Reporting by Tenzin Pema in Bangalore; Editing by Vinu Pilakkott)