Citi Reverse Split & Dividend: Three-Card Monty (C)

Banking, finance, and taxes

Published: March 21, 2011 8:53 am

Last Updated: April 27, 2020 7:10 pm

Citigroup Inc. (NYSE: C) is announcing something that we are a bit surprised about this morning. It is not quite a shell game, but it is a strategy that rarely works well for investors. The recovering money-center bank has announced a 1-for-10 reverse stock split that will take effect after the close on May 6, 2011. The company then also plans to reinstate a quarterly dividend of $0.01 per share in the second quarter after its split.

Reverse splits can work sometimes. Most investors and traders now do not generally view a reverse split other than anything as a game of three-card monty.

The company said that no fractional shares will be issued in connection with the reverse stock split as the transfer agent will aggregate all fractional shares as a result of the reverse stock split and those shares will be sold into the market.

If Friday’s $4.50 close holds, then shares would adjust to $45.00. Unfortunately, a $0.01 per quarter or $0.04 per year dividend is going to generate such a small yield that investors will never even know they received a dividend. The company is merely sending out a message that it can begin to pay back something to holders and that it will continue to look to pay holders more as conditions continue to normalize ahead.

Citi shares are with a positive market in the pre-market trading. Shares are up 2.4% at $4.61 in early indications.

JON C. OGG

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