AIG dividend boost sends mixed message

Here’s something you don’t see every day: A company hit by housing-related losses announces a massive quarterly loss and a plan to raise billions of dollars of new capital - while increasing its dividend.

That was the news out late Thursday at AIG (AIG), the insurance company locked in a fight to the death with longtime former CEO Hank Greenberg. AIG said it lost $7.8 billion, or $3.09 a share, for the quarter ended March 31, as “weak U.S. housing market, the disruption in the credit markets, [and] equity market volatility had a substantial adverse effect on its results.”

To make up for the massive loss, AIG said it would raise $12.5 billion in new capital, first through a $7.5 billion sale of common stock and equity-linked units, and then through a later $5 billion issuance of “high equity content fixed income securities.”

“These offerings are designed to further strengthen AIG’s significant financial resources,” the company said, “and will enhance its ability to grow while maintaining the strength to withstand potential short-term market volatility.”

That all sounds pretty standard. But if AIG wants to strengthen its resources, why is it boosting its quarterly dividend by 10%, to 22 cents a share? Many other companies hitting shareholders up for new capital, such as Citi (C) and Fannie Mae (FNM), have slashed their payouts in a bid to preserve cash. Perhaps AIG is trying to show investors that it believes the upheaval in the markets is temporary and that the company is still operating from a position of strength. But Thursday’s quarterly loss report - including a $3.6 billion operating loss, excluding investment gains and losses - makes that argument seem a bit far-fetched. Shares fell 8% in postclose trading.