Marchex to pay dividend….there’s just one problem.

By , August 6, 2010

Marchex (Ticker MCHX) recently announced that they will start paying a quarterly dividend of .02 per share, which at today’s closing price gives it a 1.7% yield. I was holding off commenting on this until the earnings came out, which happened today, as reported on TheDomains. After squeaking in a very negligible profit last quarter, they sunk back into loss territory this one. Which brings us to the one problem about the dividend:

Where are the earnings that they will supposedly come out of?

Dividends are, by definition a payout of a share of a company’s earnings. If the company isn’t earning anything, then any payouts are really more like a “return of capital” (I guess if they came out and called it that, shareholders would at least get beneficial tax treatment on said payouts).

What bothers me about operating companies that are losing money but “paying dividends” is that they inevitably have to rob Peter to pay Paul, either borrowing money to pay dividends (which I think is insane), or deplete capital, sell off assets, etc.

What Marchex should be doing is concentrating on stopping the bleeding, get profitable, then start paying dividends.

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