Investor Shock: Can Nokia Maintain Its Massive Dividend? (NOK, RIMM)

Nokia Corporation (NYSE: NOK) is hosed if 2011 becomes its own version of “Nokia’s New Normal.”  It has seen more downgrades than the U.S. economic recovery in the last week.  What is interesting is that Nokia ADRs have one massive dividend yield as of now for income investors.  The company does still have a monster cash sum in the billions of dollars and the ADRs were paid a $0.545 dividend per common shares just one month ago.

The problem with guessing the dividend outcome is that Nokia is based in Finland, which means it pays a dividend only once per year.  That means that shareholders today looking a near-7% dividend yield in their stock screens will have to wait eleven months from today unless there is a major change in the ADR payouts.

How many people are going to hold on to Nokia for eleven more months just for a yield of almost 7%?  Chances are that Nokia will have either managed to convince holders that a turnaround is going to work or that the slide became a death-spiral.  Translation: investors are likely to have a much higher share price or a much lower share price by May of 2011.

Without knowing its exact finances in the current quarter, the latest cash balance was roughly 11 billion euros and its implied market cap for U.S. investors is about $24 billion.  We have two scenarios that we see as an equal outcome.  Nokia can choose to break itself up or it could pursue a merger of near-equals with Research-in-Motion Ltd. (NASDAQ: RIMM).

For the current year, Thomson Reuters has a consensus earnings target of $0.37 per share.  A week ago that was $0.63 per share.  That target was $0.73 per share just three months ago.  For 2012, analysts have a target of $0.49 EPS, but that was $0.75 last week and was $0.80 EPS just three months ago.

When companies only have one annualized dividend it makes the analysis of how and when to hold shares very difficult for retail investors.  There can just be too much pain and uncertainty to wait for that old check in the mail once a year.  Yahoo! Finance rounds its dividends and the fluctuation is based upon 0.40 euro in dividend payouts, but here is the dividend history for Nokia ADRs over the last ten years:

• May 4, 2011… $0.545 Dividend
• May 7, 2010… $0.56 Dividend
• Apr 24, 2009… $0.518 Dividend
• May 9, 2008… $0.78 Dividend
• May 4, 2007… $0.565 Dividend
• Mar 31, 2006… $0.448 Dividend
• Apr 8, 2005… $0.437 Dividend
• Mar 26, 2004… $0.38 Dividend
• Mar 28, 2003… $0.297 Dividend
• Mar 22, 2002… $0.20 Dividend
• Mar 22, 2001… $0.255 Dividend

If Nokia can get its business back on track it may be able to keep its high yield.  If it enters into a merger then that dividend is not likely to remain so high.  If things get worse, let’s just say that the history of dividends will not matter.

JON C. OGG