UPDATE: International Paper Cuts Dividend

By Christopher Hinton

NEW YORK (Dow Jones) -- Facing declining demand, asset write-downs and a heavy debt burden, International Paper Co. said Monday its board of directors voted to reduce the company's dividend by 90% in an effort to preserve about $100 million every quarter.

The quarterly payout will now be 2.5 cents a share, payable June 15 to shareholders of record on May 18, down from 25 cents previously.

Shares of International Paper (IP) fell 6% to $5.35 in recent action. The stock has plummeted more than 80% since last fall and is trading near 20-year lows.

The Memphis, Tenn., paper and packaging company will use the extra cash to pay down debt and preserve its current credit rating. In March, the company agreed to buy from Weyerhaeuser Co. (WY) its containerboard, packaging and recycling business for $6 billion.

International Paper announced previously it would roll back spending, freeze salaries and reduce headcount to help weather the economic downturn that's flattened the manufacturing sector since mid-September.

"While our cash balances and cash flows remain solid, we believe it is prudent to manage cash conservatively in this uncertain economic environment," said Chairman and Chief Executive John Faraci in a statement.

International Paper thus joins a growing list of manufacturers that have reduced their dividend to preserve capital and pay down debt. On Friday, Dow Jones component General Electric Co. (GE) cut its dividend to save its investment-grade rating following bruising fourth-quarter results.