Questor share tips: Don't chase Pearson's dividend, the shares are a value trap
Summary
SHARES in Pearson [LON:PSON] soared more than 17pc yesterday as the media group pledged to maintain dividends; investors had feared a painful cut. It is the usual sad tale for investors: a steady, well-diversified FTSE 100-listed company bets the balance sheet on a spending spree of staggering proportions, leaving it indebted and staring into the abyss. Chasing growth in emerging markets resulted in $473m being spent on Brazilian group SEB in 2010, followed by more expansion in the US through Schoolnet and Connections for a combined $630m a year later. The other headache is the sharp drop in people signing up for college in the US because they are reluctant to take on large amounts of debt to gain a qualification that has no guarantee of employment at the end of it. The operating profits are expected to fall to between £260m and £300m in the year ahead, and we think the company could be facing painful write downs in the value of its asset base.
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