Lower the dividend, or perish

[Anonymous]

A company in this kind of trouble has no business paying billions in dividends every year.

There is no hope for growth, or even equity price stability, with this kind of payout.

Case in point, REITs, which pay 90% of their income in dividends, in exchange for tax-free status. They are currently paying out up to 20% dividends, but have no chance for growth, because only 10% of the income is available after dividend payouts.

Financial tricks like "non-GAAP" accounting will only last maybe one year or more. Furthermore, the staff cutbacks will cripple drug development activity.

The only solution? Cut the dividend. You'll be glad you did. Also, a "voluntary" temporary pay cut of 25% for all M2+ staff, until the pipeline has new promising products approved.

Paid for the Committee for Responsible Corporate Stewardship

 

[Anonymous]

True enough: Lilly has a "pipeline that looks like a graveyard" : http://www.fool.com/investing/general/2011/04/22/pharmas-most-perilous-pipelines.aspx

One of the really serious issues that I have with management is that employees cannot perform their tasks without the non-stop worrying coming through LillyNet. It's completely counterproductive. Instead of thinking about the next blockbuster, scientists, clinical and support staff, statisticians, etc., all just worry about their future.

I agree with you, except in a different way: Free up some of the dividend cash, buy some promising companies, retain the brightest employees (as judged by a third party). Yes, hire someone to evaluate employees, Office-Space style.

Good luck this week with the grim reaper.

 

[Anonymous]

There will not be a choice.

 

[Anonymous]

Instead of a dividend, issue Global Shares.

 

[Anonymous]

Ah, yes....Global Shares. The attic of my home is insulated with shredded Global Shares.

 

[Anonymous]

IBM in early 1990s was suffering similar situation when Lou Gerstner came to helm. Extreme anc=xiety and poor morale in all employees and contractors. So he announced what was the most important lesson in corporate structure in American corporatedom. He accelerated detachment of nearly 30% employees. But rather than firing them, he gave them 5 years to become IBM contractor at salary and benefits they were geting while called IBM FTE. Being a contractor now, one could outbid the internal work load. In other sense he created internal v. external competition to come out with ideas.

It turned out that the now former IBM FTE as contractor took on 42% more projects to completion than actual FTE. This indirectly increased the profitability, IP output, and once again IBM FTE were rejuvenated to take on serious business.

Five years later, whent the separation occurred of the former FTEs, nearly 85% were still in contract situation with IBM. On contrary to being a burden to the company, this restructuring became bonus for the employees and contractors. IBM profitability rose from ~6% to 13%. This is why Lou Gerstner is rated as number #1 CEO in IT sector, out distancing Jack Welch by 23% votes.

Lilly CEO needs to learn from such example-setting CEO. Gesrtner's salary rose from 11 million to 23 million, and no one unhappy. IBM still paid dividend all through its existance, except one year when restructuring was announced. It gives dividend of 0.7% but stock appreciation of 600%+ makes employees and shareholders happy.

 

[Anonymous]

Great example.

I worked with one such IBM contractor while a graduate student in the 1990s. IBM had no restrictions on outside activities as long as the work was done. So, suffice it to say, that all sides did very well as a result. I could tell you more, but that would sing to my own harm.

IBM in early 1990s was suffering similar situation when Lou Gerstner came to helm. Extreme anc=xiety and poor morale in all employees and contractors. So he announced what was the most important lesson in corporate structure in American corporatedom. He accelerated detachment of nearly 30% employees. But rather than firing them, he gave them 5 years to become IBM contractor at salary and benefits they were geting while called IBM FTE. Being a contractor now, one could outbid the internal work load. In other sense he created internal v. external competition to come out with ideas.

It turned out that the now former IBM FTE as contractor took on 42% more projects to completion than actual FTE. This indirectly increased the profitability, IP output, and once again IBM FTE were rejuvenated to take on serious business.

Five years later, whent the separation occurred of the former FTEs, nearly 85% were still in contract situation with IBM. On contrary to being a burden to the company, this restructuring became bonus for the employees and contractors. IBM profitability rose from ~6% to 13%. This is why Lou Gerstner is rated as number #1 CEO in IT sector, out distancing Jack Welch by 23% votes.

Lilly CEO needs to learn from such example-setting CEO. Gesrtner's salary rose from 11 million to 23 million, and no one unhappy. IBM still paid dividend all through its existance, except one year when restructuring was announced. It gives dividend of 0.7% but stock appreciation of 600%+ makes employees and shareholders happy.

 

[Anonymous]

For the clueless, the dividend is the ONLY reason I and most other shareholders have any interest in Lilly. Very simple. Lower the payout and we dump the stock, no muss no fuss.

 

[Anonymous]

For the clueless, the dividend is the ONLY reason I and most other shareholders have any interest in Lilly. Very simple. Lower the payout and we dump the stock, no muss no fuss.

Try something like Weyehauser (WY) or AstraZeneca (AZN). Or simply put all eggs in one basket Berkshire Hathaway (BRK.a or BRK.B). Another one is BLK. All these are growth with better than Lilly dividends, and likely to last for another 20 years.

But if oyu want super growth, dividend, global market leadership: try PPG Industries (PPG) or BHP Billion ADR(BBL).

I know you are working hard an gets no personal financial advice from an industry neutral CFA. These are the signs why JCL is marketing performance enhancers for pigs and bulls, and flies personal jet.

 

[Anonymous]

For the clueless, the dividend is the ONLY reason I and most other shareholders have any interest in Lilly. Very simple. Lower the payout and we dump the stock, no muss no fuss.

Well then you had better sell your shares before the price tanks. Once our revenues shrink 25%+ later this year you'll never ever recover your original investment in Lilly.