Street Has No Mercy For Teva Following Dividend Cut

Teva Pharmaceutical Industries Ltd (ADR) TEVA's management recently made the difficult decision to slash the company’s 6.5-percent dividend by 75 percent, lowering the stock’s yield to just 1.2 percent. The decision will save the company some much-needed cash, but it has done a number on its share price and sent Wall Street analysts running for the hills.

Friday’s 1.5 percent loss marks Teva’s 12th consecutive day in the red, a period of time that has cost the company roughly half its market cap. News of the dividend cut prompted Morgan Stanley to downgrade the stock from Equal Weight to Underweight and slash its price target from $36 to $16. Credit Suisse followed up with its own downgrade from Outperform to Neutral, reducing its price target from $39 to $25.

Teva’s prolonged decline following its dividend cut on massive volume is indicative of some serious dumping in the market, not just traders taking advantage of the opportunity for a quick buck.

Related Link: A Long Road To Recovery For Teva Pharmaceuticals; Morgan Stanley Downgrades

Why such a big move over a thing as simple as a dividend cut?

Stock investors tend to be either growth investors or value investors. Growth investors are looking to identify companies that are on the rise and really ramping up revenue. Value investors, on the other hand, are looking for stocks that are dependable and priced at a reasonable level relative to the amount of income the company generates.

Value investors often appreciate the dependability and compounding effect that a large dividend yield provides. When a company like Teva cuts its dividend, is not profitable and is not producing particularly favorable growth numbers, investors simply run out of compelling reasons to own it over other stocks.

Joel Elconin contributed to this story.