Alcoa stock declines on dividend worries

PITTSBURGH - Shares of Alcoa Inc. skidded Thursday as an analyst said the aluminum producer will be forced to suspend its annual dividend, which costs the company about $560 million, because of plummeting prices for the metal.

Shares of the Pittsburgh-based company dropped $1.23, or 13 percent, to $8.06 in afternoon trading. The stock has traded in a range of $6.80 to $44.77 over the past year.

In a client note, JPMorgan analyst Michael Gambardella wrote that Alcoa had taken steps to bolster its cash flows, such as production cuts and the suspension of its share buyback program and non-critical capital projects.

"We think (Alcoa) will also ultimately be forced to suspend its dividend," he wrote, adding that his firm thought it unlikely Alcoa, the largest U.S. aluminum maker, would borrow to fund next year's annual dividend of roughly $560 million.

In 2007, Alcoa raised its annual common stock dividend to $590 million, or 68 cents per share, from $524 million, or 60 cents per share, a year earlier, according to the company's annual report.

"Additionally, given the weakness and uncertainty in metal prices, we think it will be difficult for the company to continue to pay the dividend and hope that it can 'ride out the storm,'" Gambardella wrote.

Aluminum prices have fallen precipitously this year. The metal currently sells for 72 cents per pound, according to Gambardella. It reached a high of about $1.50 per pound in June.

Kevin Lowery, an Alcoa spokesman, declined to comment on the analyst's note, but said Alcoa's board of directors reviews dividends each quarter based on current conditions.

Also Thursday, the Commerce Department reported that U.S. factory orders plunged in October by the sharpest amount in more than eight years as a deepening recession caused big cutbacks in demand for steel, autos, computers and heavy machinery. Orders for primary metals plunged by 23.1 percent.

Alcoa makes aluminum and uses it to manufacture products such as truck wheels and jet wing parts. In October, the company reported a 52 percent drop in third-quarter profit, as sharply lower prices and weaker demand weighed on results.

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