SeaWorld Entertainment Inc (NYSE:SEAS) sparked a selloff in its stock after announcing plans to cut its 4Q2016 dividend by more than 50%. The company further revealed that it would consider ending dividend payments in the future until further notice.
SeaWorld stock sank to a record low immediately when the market learned of its plans to curtail and then possibly halt dividends.
After lowering the dividend, SeaWorld said it intends to use the balance to buy back its stock.
What’s the new dividend amount?
SeaWorld has slashed its 4Q dividend to $0.10 a share, down from $0.21 a share it used to distribute in quarterly dividends.
The company tried to explain that the decision to trim the dividend came after careful consideration by its board. It turns out that the board looked at various financial options to return the greatest value to shareholders and determined that opportunistically buying back shares in the open market would unleash the greatest reward for shareholders.
However, SeaWorld’s cash deployment plan has triggered backlash with several Wall Street analysts saying there were better says to boost shareholder returns than sacrificing dividends on the altar of buybacks.
Analysts such as Tyler Batory of Montgomery Scott and Matthew Brooks of Macquarie Research doubt SeaWorld’s cash deployment plans. Instead, the analysts say that the company should have considered reinvesting the cash saved through a dividend cut. They particularly cited that SeaWorld should have used the money to build new attractions.
It remains to be seen if the backlash can persuade SeaWorld’s board to rescind the dividend cut decision.
Some analysts even warned that SeaWorld could be planning to lower its 3Q2016 outlook.
How SeaWorld fared in 2Q
SeaWorld generated revenue of $371.1 million in 2Q2016, missing the consensus estimate of $372 million. Adjusted EPS of $0.21 also missed the consensus estimate of $0.21.
SeaWorld has been struggling with shrinking attendance in recent years, which has in turn adversely impacted its per capita revenue. Negative publicity along the lines of captive whales and employee safety issues have been linked to SeaWorld’s woes.