January 28, 2009 / 12:14 AM / 11 years ago

UPDATE 2-McClatchy suspends dividend to preserve cash

(Adds background on importance of newspaper dividends)

By Robert MacMillan and Yinka Adegoke

NEW YORK, Jan 27 (Reuters) - McClatchy Co (MNI.N) said on Tuesday it will stop paying a quarterly dividend so it can pay its debt, paving the way for other U.S. newspaper publishers to take similar action as their businesses languish.

McClatchy, publisher of the Miami Herald and The Sacramento Bee, said it will suspend dividend payments after paying out a first quarter dividend of 9 cents a share on April 1.

The third-largest U.S. newspaper publisher is struggling to pay off $2 billion in debt related to its purchase of defunct newspaper chain Knight Ridder Inc. It previously had halved its dividend to devote more money to debt payments.

In recent months, McClatchy and other newspaper companies have explored selling real estate or other assets in a bid to pay off money they borrowed as advertising revenue, long their primary source of income, declines.

The move could prompt other U.S. newspaper publishers to kill their dividends. Some have already cut their dividends, including the New York Times Co (NYT.N), which slashed its payment by nearly 75 percent last year.

McClatchy, however, is the first publicly traded publisher known to have stopped paying a dividend.

Though the move will likely disappoint shareholders, who long have relied on newspaper publishers to provide solid, steady payments even as their businesses decline, it gives newspaper companies more money to pay off debt and fund their efforts to find ways to survive as fewer people pay for print subscriptions and get their news online instead.

Many Wall Street analysts and media experts have said that newspaper chains should eliminate their dividends, figuring that shareholders can deal with the pain now so that the businesses that they invest in can have enough cash to figure out how to adapt to the 21st-century Internet age.

It is unclear how the cut will affect members of the McClatchy family, who control the family through a separate class of stock.

Such questions are paramount for U.S. newspaper publishers that are structured in similar ways by families who made fortunes from owning presses in the golden age of newspapers but now are dealing with diminished prospects as ad revenue falls. (Reporting by Robert MacMillan and Yinka Adegoke; Editing by Andre Grenon)

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