NEW YORK -- The share price of USF&G fell 10 percent yesterday as reports circulated that the Baltimore-based property and casualty insurer would cut its dividend.
The stock's decline, from $13.625 to $12.25, came after Shearson Lehman analyst Udayan Ghose said early yesterday that USF&G would reduce the dividend following a board meeting later in the day.
Mr. Ghose's comments were picked up by the Dow Jones wire service, causing confusion among other analysts, who said they thought the company would be making no decision on dividends until today. Spokesmen for USF&G were unavailable to clarify the company's position.
Although USF&G has repeatedly asserted its intention to maintain, and annually raise, its dividend, the company's lackluster financial condition has many on Wall Street feeling that a cut is inevitable.
Last year, the company earned less than half what it paid out to shareholders, and forecasts compiled by I/B/E/S, a Wall Street tracking service, indicate the disparity this year and next will be bigger.
Additionally, the company's investment holdings in real estate, "junk" bonds and equities have caused concern about potential write-offs.
USF&G's stock price, which approached $50 a share in 1987 and $35 a share early last year, has plummeted in recent months from around $25 to its current level.
Assuming the dividend of $2.92 a year is maintained, its effective yield is more than 20 percent. The average for the market is about 4 percent.
In an interview late yesterday, Mr. Ghose said the stock's current price, coupled with talks with institutional investors, led him to believe there was widespread expectation that the annual dividend would be cut by $1 to $1.50 a share. That would still mean the company's dividend would exceed its earnings, which Mr. Ghose estimates "on the high side" will be $1.20 for this year, $1.40 for next.
"As an investor, I would like to see it be cut to around a $1 a share, but I don't think the company will do that," Mr. Ghose said. "My concern is that cash flow from its property and casualty operations have dried up because of a four-year price war while the use of cash, what they are spending, has gone up because of the rising dividend, the life insurance operations and their other financial service operations."
Mr. Ghose said the company's denials of a dividend cut have become less emphatic recently and the company may see it has little choice. "The stock market has forced their hand," he said.