Killing The Dividends At Fannie Mae (FRE) And Freddie Mac (FRE)

By Douglas A. McIntyre Published Jul 16, 5:31AM EDT

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GM (GM) cut its dividend to zero. It is a nifty way to save a lot of money and, once a company’s shares have fallen by a huge amount, investors almost expect it. Several banks like NCC (NCC) have taken similar actions.

Fannie Mae now has an extraordinary yield of over 14%, paying out $1.40. No one at the company meant for it to be that high, but the drop in share price has put it there. Freddie Mac’s (FRE) yield is also above 14%. On paper, that makes the two companies among the best investments around. Where else can shareholders get that kind of interest?

Freddie Mac has 647 million shares outstanding. That puts that amount of money it has to pay out each quarter just short of colossal.

According to Bloomberg over the last year, "Fannie Mae’s payouts totaled $2.48 billion." Freddie Mac’s total is well over $1.5 billion.

Most investors know that the yield from both companies can’t be sustained. Stockholders who were in for the interest payments walked a long time ago. That means cutting dividends it not likely to push the shares in the two companies down.

As a matter of fact, Wall St. would probably be relieved that managements had enough sense to save the money. They might even get a little rally out of it.

Douglas A. McIntyre

Contact [email protected] for any questions or corrections.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.