Mon 14 Aug 2006
In a fairly odd turn of corporate governance, Horizon Lines (HRZ) has declared its first ever dividend and is also issuing new shares — both announced within two weeks of each other. The news of the new shares has pushed the price down 3.3% today and 11% from its recent high.
Now, if you know you’re going to raise cash by issuing new shares (a 15% dilution, no less!), why would you bother declaring a dividend at all? The point of a dividend is to return cash to shareholders… There is a catch-22 in there somewhere…
HRZ has a nice position as a mid-cap in the transportation sector. It has a strong balance sheet and operates as a Jones Act shipper which basically limits their competition as a shipper to Alaska, Hawaii, Guam and Puerto Rico.
August 15th, 2006 at 7:42 am
I’m wondering if they are responding to dual pressures: some powerful or important employees with stock want a dividend to boost their investment returns, but they did the math and found out that they will need more stock to pay for this dividend AND fund their growth strategy. I wonder if this is a sign of conflicting strategies within the company, reflecting at least two powerful fractions who have different ideas where the company should be headed. Just a thought, since these two announcements should not accompany one another.