NiSource Inc. announced after the market closed on Tuesday that it would slash its dividend 21% to support its “credit profile, improve cash flow and position the company to deliver improved long-term value to shareholders.” The move follows the sale of its exploration and production (E&P) business last week, which enabled the company to fully exit the nonregulated side of the energy business activities (see Daily GPI, July 7).

The common stock dividend will be cut from $1.16/share to 92 cents/share annually starting in November. November’s dividend is expected to be payable at 23 cents/share.

“This is a difficult step for us because we understand the importance of the dividend to our common stockholders,” said CEO Gary L. Neale. “In my 2002 message to shareholders, I indicated our current and projected financial results would enable us to achieve a dividend payout consistent with our historic payout ratio of 60% to 70%. We still believe this to be true. Although this remains achievable, changing expectations in the credit and capital markets in the last six months caused management to recommend that the board consider alternate policies. We now believe that reducing our payout ratio to the 55% range is in the best long-term interest of our shareholders.

“This change in the dividend, the sale of our non-core assets, our November 2002 equity offering and ongoing debt reduction efforts have enabled us to stabilize our credit ratings, enhance our cash flow and provide funds to reinvest in NiSource’s core businesses for the future,” he added. Neale also noted that the decision was influenced in part by the company’s higher-than-average dividend yield and payout ratio.

“Coupled with our recent announcements that we are selling most of our remaining non-core assets — electric cogeneration and natural gas exploration and production — we believe the change in dividend policy is an important factor in positioning the company for continued financial strength,” he said.

NiSource intends to focus on regulated utility and pipeline businesses. The company sold its E&P business, Columbia Energy Resources, last week to Triana Energy Holdings LP, an affiliate of Morgan Stanley Capital Partners, for $330 million in cash. It also recently sold Primary Energy, its cogeneration business.

Moody’s Investors Service on Tuesday confirmed the credit ratings of NiSource and its subsidiaries, concluding a review for possible downgrade that was started in May. Moody’s said the company’s rating outlook is stable. Although the assets sales had neutral financial impact, they were “beneficial to the company’s credit standing” because they reduced its direct debt service obligations, conserving cash to be available for debt reduction, working capital, or capital expenditure needs, and because they reduce its overall business risk, Moody’s said. The decision to cut its dividend should have a further positive impact on NiSource’s credit profile.

NiSource’s decision to cut its dividend follows dividend cuts by numerous other company’s since Enron’s fall into bankruptcy and the corresponding crack down by ratings agencies. Others include Northwestern, Westar Energy, El Paso Corp., CMS Energy, Allegheny Energy, Alliant Energy, Aquila, TXU, Dynegy, CenterPoint, Williams, and Puget Energy.

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