Cash or Not Written Critique: Cash or Not, Daimler to Pay Its Dividend

Conventional wisdom might suggest that when a company is financially healthy and expanding at a sustained rate, investors can expect a predictably healthy dividend, but when the company is doing poorly, shareholders should prepare to count their pennies. However, the case of DaimlerChrysler shows that this is not necessarily the case.

The relatively long-merged German and American automotive company still experiences difficulties in dealing with the different investment and business climates of America and Germany. On one hand, because of substantial losses at the company, American shareholders might expect a reduced dividend. The few profits the company did see were not the result of sustained growth and development, but spinning off its aerospace and information technology businesses, in short, a one-time gain. But CEO Jurgen E. Schrempp stated that German investors expect a predictable payment from the company, and regard investing in the market as a stable source of revenue in a way that American investors, more accustomed to market volatility, do not.

On the American 'front,' Schrempp has found himself in conflict with American unions, as he attempts to negotiate an early retirement settlement with unnecessary workers, to reduce costs. Schrempp evidently hopes to maintain a positive buzz about the company, keep investors happy and thus keep revenue flowing in the future, while taking a hit in the short-term as he waits for the company to gradually show a profit once more workers retire. It remains to be seen if his strategy will pay off.

Obviously, the CEO hopes that there will be savings on the horizon, and feels that the greatest risk posed to the company is by a hostile takeover that could occur if the crucial Deutsche Bank and the Kuwait Investment Authorities sell their shares in the company, given that they make up such a large percentage of the company's investors. But if the company continues to use up the cash it has on reserve to pay shareholders, rather than reinvest in the company, he may regret his decision.