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Can You Trust Wm. Morrison Supermarkets plc’s Management?

Morrisons  (LSE: MRW) is facing a crisis as customers turn their back on the retailer in record numbers. 

At times like this, shareholders look to management to provide a killer and drastic turnaround plan. However, Morrisons’ management has not come up with a plan to rescue the retailer.

As management continues to ignore the severity of the situation, tensions between investors and the company are rising.

Tensions morrisons

Tensions between shareholders and management have been brewing for some time but came to a head earlier this year at the company’s AGM. At the AGM, One of the company’s largest shareholders, former chairman, and now Life President of the company, Sir Ken Morrison, blasted the company’s current management.

 The former chairman told the current board that the group’s losses were disastrous and the company had failed to run its core supermarkets properly:

“I personally thought they [the results] were disastrous. I warned in 2009 and 2012 that changes being implemented by directors would seriously damage the business … [my comments] were absolutely right and today we have seen the consequences.”

Out of touch

It’s easy to see why Sir Ken is frustrated. Morrisons’ current management seems to be out of touch with the UK’s changing retail landscape.

For example, the Bradford-based retailer has recently announced that it will extend opening hours to 6am to 11pm at 230 of its 490 shops. Morrisons claims that it is making this change to meet the demands of modern life. However, the company’s peers have all offered extended opening hours for years. Many Tesco and Asda supermarkets are open for 24 hours.

What’s more, Morrisons lags in the convenience store market. Tesco has more than 10 times as many convenience stores as Morrisons — all of Tesco’s convenience stores offer extended opening hours and can open longer on Sundays.

Some progress

Nevertheless, management has made some progress recently. The company has cut prices and rebased its profit margin within the past few months. Still, analysts say that it could take six to 12 months before these lower prices boost trading.

Unfortunately, with profits falling and no turnaround in sight any time soon, Morrisons’ hefty dividend yield looks to be under threat. Indeed, a dividend yield of around 7.4% suggests to me that the market does not think the payout is sustainable. 

Further, the figures also suggest to me that the company’s payout is set for the chop. Specifically, current City forecasts only expect Morrisons to report earnings per share of 12.1p for 2015, while the company is expecting to payout a dividend of 13.5p per share. These figures imply that Morrisons could be forced to either cut its payout or borrow to fund the dividend. 

Can’t be trusted

It’s obvious that Morrisons’ management can no longer be trusted after making so many mistakes. So, perhaps it’s time for investors to hunt out better returns elsewhere.

Indeed, Morrisons' dividend payout on the chopping block income investors will want to get out ahead of a possibly payout cut.

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Rupert Hargreaves owns shares of Morrisons and Tesco. The Motley Fool UK own shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.