Brookdale Senior Living Slashes Dividend

March 20, 2008

March 20, 2008
Although many investors believed that a dividend cut was already built into Brookdale Senior Living's share price, we are not sure they expected a 50% cut in the quarterly dividend to just $0.25 per share. The irony is that it was fairly foolish to have even pushed the quarterly dividend up to $0.50 per share at a time when the company's cash flow from operations couldn't cover it, and wasn't even expected to cover it until the third quarter of this year.

With the company now focusing on organic growth, the $100 million of annual cash savings will certainly help, even though they may use the cash for a new share buyback program. The extra cash will also help if the current housing downturn continues and puts additional pressure on occupancy rates at Brookdale's CCRC campuses and independent living communities. The bottom line is that the Board reversed what we thought was a decent idea - trying to look like a dividend yielding REIT - but at the absolute wrong time when they didn't have the cash flow to afford it. So, a tough decision yesterday, but the right one.

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