Hewlett-Packard Co. (NYSE: HPQ) has turned into nothing short of a disaster. This is not a value stock even at 4-times earnings. H-P has become a value trap. As this is a value trap, we are worried about H-P’s real ability to maintain its current dividend. Let’s go ahead and throw in questions about ist share buyback plan, too.

Whenever investors talk about value stocks, there is often talk of a dividend. Well, it turns out that H-P has a 3.1% dividend yield as now. Our readers love dividends and the higher the better as long as those high dividends are sustainable. This is going to hurt, but H-P may need to seriously consider cutting its dividend. It is likely going to need to stop repurchasing its common stock during its restructuring too.

Firing workers and buying back stock may sound good to shareholders, but the current environment where companies get attacked for only caring about shareholders may change that historic stance.

When H-P last reported earnings, it sad, “HP’s dividend payment of $0.132 per share in the third quarter resulted in cash usage of $260 million. HP also utilized $365 million of cash during the quarter to repurchase approximately 16.5 million shares of common stock in the open market. HP exited the quarter with $9.9 billion in gross cash.”

H-P will likely maintain that it can easily keep paying its dividends and continue its share repurchases. That is not the same as whether or not it should.

One reason that this comment is going to hurt so badly is because rival Dell Inc. (NASDAQ: DELL) just started paying a dividend recently. Its dividend is now showing a yield of 3.2%, but that is also because the stock price of Dell has fallen to under $10.00. Dell’s initial dividend declaration came to 2.67% when it was announced in june because shares were at $11.98 at the time. Dell shares are barely above $9.50 now.

H-P has also dropped handily since the date Dell declared its last dividend. H-P shares were at $21.54 on that date, and after a 12% drop on Wednesday and a drop of 2.5% more this morning we have H-P down at $14.52. That means that Dell is down “only” 20% versus a dismal drop of 32% at H-P.

HP shares sank to about $19 after short seller Jim Chanos came out bashing H-P as one huge opportunity to short sell the stock. He had been short from a higher price, but that short-sell trade could have been worth a 23% gain for traders and speculators that rose it the entire way.

One more reason that H-P may need to consider cutting its dividend is that it carries $24 billion in debt. If you back out the goodwill and other intangibles, H-P actually has a negative value for its net tangible assets and that is not pretty. Who thinks that H-P won’t have to write down the value of its goodwill as the value of past acquisitions obviously has to be lower than even a quarter ago?

Apple Inc. (NASDAQ: AAPL) now even pays a dividend and it has over $100 billion in cash. Many investors want to see Apple be in the Dow Jones Industrial Average. The problem is that H-P is currently a DJIA component. Which company is more representative of the economy today?

JON C. OGG

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