B&N: Wall Street Takes Dim View of CEO Firing

Late last week, as investors digested the news that Barnes & Noble had fired CEO Demos Parneros on the eve of the Fourth of July holiday, on Friday B&N stock fell 11%, to $5.25 a share, a day the Dow Jones rose 0.4%. Volume was three times normal. The company's market capitalization is now $381 million, and its yield is 9.3%.

Stories in the financial press were mostly negative. Besides the concern about four CEOs departing B&N in the past five years, the stories highlighted fears that one of the main attractions of the stock--its annual dividend of 60 cents a share, amounting to about $43 million last year--is unsustainable.

Currently, B&N stock is attractive to "yield chasers and value investors," as Edgar Torres wrote on Seeking Alpha in a story called "Barnes & Noble: Chronicle of a Death Foretold." The high yield will continue to attract investors interested in a steady dividend payback, but if they bid up the stock too much, it will be less attractive to the value investors, who bet that the stock is underpriced and ultimately will climb in value. In an era of continuously declining sales, if the company can't maintain the dividend, then it will lose interest to yield investors--and the underlying problems that threaten the dividend will be more apparent to value investors.

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