Why Cobham Cut its Dividend

Airline business Cobham has cut its dividend after 45 years of regular income payments. But for analysts the cut is no surprise

Jeffrey Vonk 25 January, 2017 | 8:47AM
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Jeffrey Vonk: After paying 45 years in a row dividend Cobham (COB) decided lately to stop paying dividend, which is maybe shocking announcement if you have done dividend payment for such a long time. But in our view, it's not totally a surprise, that they have to stop paying a dividend.

Cobham, which is quite famous for mainly two things, they do air-to-air refueling and that’s really a fascinating business where you in the air fuel the aircraft by mileage of maybe 500 kilometers per hour. So, that’s really fascinating stuff and very difficult and also safety is an important angle to that. Cobham is controlling that market they have roughly 90% of that market. So, it’s very interesting business.

And another business which is also very interesting for them is that on all aircrafts of one of the manufacturers Airbus, they control the communication systems. So, all the communication within the plane and also to the outside world is done by the box of Cobham. Those two businesses I was just talking about are very great businesses.

Unfortunately, the company has diluted this great assets by doing string of acquisitions in less moaty businesses. As a result of that the profitability has plummeted and also debt levels have increased quite high. As a result of that the company has done to (right) issues where they raise money and of course it’s a little bit strange in a way that in the times that you are raising money. You are also giving back money to the shareholders by dividend. So, its not an absolutely surprise that with new management coming in. That they maybe stop the habits of previous managements and stop paying the dividend. 

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Jeffrey Vonk  is an equity analyst with Morningstar.

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