PC and printer maker Hewlett-Packard Company (
) has seen its stock decline for over a decade, and now it faces
with even more problems, including an accounting fraud related to a
recent acquisition. We wonder how long HP will be able to maintain
its dividend payout (hint: not long).
A Disastrous Acquisition
H-P surprised both consumers and investors alike on Tuesday when
it disclosed massive accounting irregularities at UK-based software
firm Autonomy. The company acquired Autonomy back in 2011, and
clearly didn't do enough homework prior to the over $10 billion
buyout. H-P's official announcement about the matter noted, "HP is
extremely disappointed to find that some former members of
Autonomy's management team used accounting improprieties,
misrepresentations and disclosure failures to inflate the
underlying financial metrics of the company, prior to Autonomy's
acquisition by HP."
News of the scandal pushed HPQ down another 12% today, adding to
its long-term decline. As the old Wall Street saying goes, "At the
first sign of accounting irregularities, sell."
Fundamentals, Share Price Deteriorating
Hewlett-Packard's four core businesses have all been taking hits
as of late. According to the company's latest earnings report,
Personal Systems revenue plunged 14% from last year, printing
revenue fell 5%, services revenue lost 6%, and Enterprise Servers,
Storage, and Networking (ESSN) revenue plunged 9%.
HP's share price has declined 55% year-to-date, and -77% in the
last five years. The stock now sits at 15-year lows. What used to
be a technology giant is now struggling just to survive. With the
now-constant decline, new management may likely decide to exit some
of its core businesses (current CEO Meg Whitman took the helm in
Classic Value Trap
Because of its startling price decline, HPQ currently sports a
dividend yield around 4.5%. Believe it or not, its annualized
payout of 53 cents per share is probably sustainable for the time
being. The company has cash on the books and is still profitable,
but its earnings trend is clearly downward. Generally speaking,
companies in downward spirals like these look to cut their
dividends sooner rather than later.
The Bottom Line
HP's accounting scandal is just another downer in a long string
of negative events for the company. The combination of new
management, declining earnings, and now accounting fraud likely
spell a significant dividend cut in the near future. Thus, it would
be wise for dividend investors to stay clear of HPQ.
) is not recommended at this time, holding a Dividend.com DARS™
Rating of 2.8 out of 5 stars.
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