VW Stock: Is Volkswagen AG (ADR)’s Dividend Safe?

VW StockVW Stock Dividend Could Be Cut, Board Member

Volkswagen AG (ADR) (OTCMKTS:VLKAY), the troubled German carmaker, has hinted that it may stop paying its dividend this year in order to retain the money for the financial fallout from its worldwide emissions-cheating scandal. The news sent VW stock dropping on Tuesday.

When it comes to the company’s dividend payout, “There is no sign that shareholders might even be able to hope for a single cent,” German news agency DPA reported on Tuesday, quoting an unidentified supervisory board member.

The board member told the agency that costs of between 20 and 30 billion euros in the U.S.—where the emissions scandal first emerged—meant that it would be very difficult for the company to make a dividend payment for 2015.

A VW spokesman declined to comment on the outlook for a dividend payment, saying the group would provide details at its annual news conference due April 28. (Source: “Volkswagen could forego 2015 dividend payout: report,” The Times of India, March 29, 2016.)

VW stock was down 1.9% at 112.70 euros as of 2:50 p.m. Germany time. The U.S.-listed shares (OTCMKTS:VLKAY) were also down 1.6%, at $27.95 as of market open.

The Wolfsburg, Germany-based company admitted at the time that it had intentionally installed malicious software into 11 million diesel engines worldwide to deceive environmental regulators during testing. The company will need the huge cash mountain it has amassed in recent years to pay for the still incalculable fines and legal costs connected with the affair.

Last year, Volkswagen AG paid out 4.86 euros per preferred share and 4.80 euros per ordinary share, with an annual yield of more than four percent.

In January, the U.S. Justice Department sued Volkswagen AG for up to $90.0 billion for allegedly violating environmental laws—five times regulators’ initial estimate. Although such U.S. lawsuits are typically settled at a fraction of the theoretical maximum penalty, analysts said the size of the claim meant Volkswagen AG could face a larger bill than previously anticipated. (Source: “VW faces billions in fines as U.S. sues for environmental violations,” The Globe and Mail, January 4, 2016.)

The emissions scandal comes at an inopportune moment for the auto industry, which is currently trying to meet consumer demand for more sustainable vehicles. Volkswagen, for its part, is investing heavily in research and development in the field of electromobility and digitalization. (Source: “VW could scrap dividends to save money,Deutsche Welle, March 29, 2016.)

One reason the emissions scandal has investors so worried is because the expected hefty penalty could leave the company with less money to invest in itself. (Source: Ibid.)

VW stock is now 32% below its pre-scandal levels.