What Investors Need To Know About Dividend Cuts

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Dividend investing provides a growing passive income stream and can make investors agnostic to stock market conditions.Dividend cuts significantly hurt investors by reducing passive income and ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhat Investors Need To Know About Dividend Cuts\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-17 19:15 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4684185-what-investors-need-to-know-about-dividend-cuts><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Dividend investing provides a growing passive income stream and can make investors agnostic to stock market conditions.Dividend cuts significantly hurt investors by reducing passive income and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684185-what-investors-need-to-know-about-dividend-cuts\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4561","symbol_name":"索罗斯持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4684185-what-investors-need-to-know-about-dividend-cuts","article_id":"2428316466","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/174636177/image_174636177.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2428316466","pubTimestamp":1713352500,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Dividend investing provides a growing passive income stream and can make investors agnostic to stock market conditions.Dividend cuts significantly hurt investors by reducing passive income and indicat","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4561":"索罗斯持仓","LUMN":"Lumen Technologies","BK4581":"高盛持仓","VFC":"威富集团","IE00BSNM7G36.USD":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","BK4504":"桥水持仓","BK4590":"PTP","ISBC":"投资者银行","BK7057":"人力资源与就业服务","BK4202":"服装、服饰与奢侈品","LU1621767737.EUR":"AZ EQUITY GLOBAL INFRASTRUCTURE \"AAZ\" (EUR) ACC","LU2384288077.EUR":"AZ EQUITY GLOBAL INFRASTRUCTURE \"A-INS\" (EUR) ACC","BK4089":"非传统电信运营商","LU1621768206.USD":"AZ EQUITY GLOBAL INFRASTRUCTURE \"AAZ\" (USD) ACC","AQN":"Algonquin Power & Utilities Corp","LU1621767810.EUR":"AZ EQUITY GLOBAL INFRASTRUCTURE \"A\" (EUR) INC","LU1621768115.EUR":"AZ EQUITY GLOBAL INFRASTRUCTURE \"B\" (EUR) INC","BK4515":"5G概念","BK4554":"元宇宙及AR概念","BK4144":"石油与天然气的储存和运输","BK4160":"多样化房地产投资信托v","BK4534":"瑞士信贷持仓","LU0149725797.USD":"汇丰美国股市经济规模基金","BK4585":"ETF&股票定投概念","BK4507":"流媒体概念","T":"美国电话电报","LU1571399168.USD":"ALLSPRING GLOBAL LONG/SHORT EQUITY \"IP\" (USD) ACC","BK4080":"零售业房地产投资信托","BK4211":"区域性银行","BK4535":"淡马锡持仓","SPG":"西蒙地产","AQN.AU":"AQUIRIAN LTD","BK4550":"红杉资本持仓","BK4588":"碎股","BK4115":"综合电信业务","BK4208":"复合型公用事业","ET":"Energy Transfer LP","WPC":"W. P. Carey Inc","BK4231":"零售房地产信托"},"translate_title":"关于削减股息，投资者需要知道什么","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AQN.AU":1,"WPC":1,"VFC":1,"T":1,"SPG":1,"LUMN":1,"ISBC":1,"ET":1,"AQN":1},"content_text":"Dividend investing provides a growing passive income stream and can make investors agnostic to stock market conditions.Dividend cuts significantly hurt investors by reducing passive income and indicating potential underlying issues with the company.We discuss the causes of dividend cuts, the early warning signs to watch out for, and how to respond prudently when a dividend cut takes place.   TimAbramowitz One of the biggest appeals of dividend investing is that it creates a growing passive income stream that can fund living expenses without forcing you to sell shares of stock at potentially inopportune times. As a result, it makes you relatively agnostic to stock market conditions and, in fact, can even make you happy when stock prices drop because it makes the yield on cost of new purchases higher. As a result, the worst enemy of the dividend investor is a dividend cut. When a stock reduces or even eliminates its dividend payout, it significantly hurts a dividend investor because, in addition to reducing their passive income stream, it also typically sends the stock price plummeting and may also be a symptom that the underlying company is having serious issues. It also often serves as a blight on the management team by revealing that they may be poor capital allocators, since they previously raised the dividend to a level that turned out to be unsustainable. In this article, we will discuss important principles about dividend cuts for investors to keep in mind, including common reasons behind dividend cuts, early warning signs of a potential dividend cut, and how to respond to dividend cuts. Reasons Behind Dividend Cuts There are four common reasons behind dividend cuts:  Macroeconomic headwinds Poor company performance Overleveraged balance sheet Strategic reprioritization of capital  A dividend cut resulting from macroeconomic headwinds typically means that either (1) the stock was highly cyclical and a downturn in either the broader economy or the industry itself caused earnings to decline to a point where the company decided that it needed to cut its dividend. Two recent examples of this are V.F. Corporation (VFC) and Simon Property Group (SPG), both of which previously had impressive dividend growth streaks, but the COVID-19 lockdowns hurt SPG's performance to the point where it felt it was prudent to reduce its payout and VFC got hit by the whipsaw impact of supply chain headwinds, wild swings in consumer demand, and severe inflation in the aftermath of the COVID-19 lockdowns. A dividend cut due to poor company performance is typically due to the business declining fundamentally, separate from macroeconomic headwinds. Recent examples of this include Lumen Technologies (LUMN) - which failed to turn around its rapidly declining revenue in time to save its dividend - and AT&T (T) - which grossly misallocated shareholder capital on tens of billions of dollars' worth of ill-fated acquisitions alongside stagnant growth in its core business. A dividend cut due to an overleveraged balance sheet is typically the result of management running up too much debt, meaning that even the slightest hiccup in the business' performance or the macro environment forces management to slash its payout. Recent examples of this include Energy Transfer (ET) - which halved its distribution in order to save its investment grade credit rating - and Algonquin Power & Utilities (AQN) - which also slashed its dividend in order to adjust to elevated interest expense and try to deleverage its balance sheet some as well. Finally, a dividend cut due to a strategic reprioritization of capital is often the least negative type of dividend cut but can still be painful for income-focused investors, nonetheless. A recent example of this type of dividend cut is W. P. Carey's (WPC) decision to \"right size\" its dividend as part of its office property spin-off and asset sale and goal to retain additional cash flow in order to grow its AFFO per share at a faster clip. While obviously a painful development to income investors who bought shares in a BBB+ rated triple net lease REIT with a quarter-century of dividend growth, this move debatably had merit given that it enabled WPC to exit its office portfolio at an expedited rate before the broader sector's severe headwinds hit it more forcefully and gives it additional financial flexibility in an elevated cost of capital environment to grow its industrial property portfolio in pursuit of a higher valuation multiple and higher dividend growth rate. Early Warning Signs of a Potential Dividend Cut With the common reasons behind a dividend cut now laid out, here are some of the early warning signs of a dividend cut that investors can watch out for:  High payout ratios, since these often indicate that a company has little margin for error in their underlying earnings generation, and also may decide to cut the dividend in order to increase retained earnings to pursue other strategic objectives. Elevated leverage ratios, since these often indicate that a company may be forced to cut the dividend to retain enough cash to pay down debt to preserve its credit rating and/or keep leverage levels under its debt covenants. Declining cash flows, since these likely imply that the business may not be durable and eventually the payout ratio and/or the leverage ratio may become too high for the dividend to be sustained.  How to Respond to Dividend Cuts While avoiding a dividend cut is extremely important for income investors, no one is perfect, and - if you invest primarily in high-yielding dividend stocks - it is inevitable that eventually, you will have to endure a dividend cut. For example, WPC's decision to cut its dividend was surprising to almost everyone, especially given that the company had just raised its dividend mere weeks before announcing its cut. As a result, knowing how to respond prudently to dividend cuts is also very important. The three main considerations that need to be taken into account once a dividend gets cut are:  What is the post-cut dividend yield? What is the current valuation? What is the path ahead for the dividend?  For income investors, the main purpose of a stock is to provide a steady (and preferably growing) stream of passive income. Therefore, if the post-cut dividend yield after the cut is too low, the stock should be sold and the capital recycled into a higher-yielding stock. However, if the yield is still sufficiently attractive to remain in the portfolio, then it may not be necessary to sell the stock. Additionally, given that stocks that cut their dividends tend to crash in price in the wake of the cut being announced, it is important to look at the valuation after the cut. While a dividend cut is rarely cause for shareholders to rejoice, it is simply a capital allocation decision at the end of the day and does not directly change the company's intrinsic value. As a result, sometimes dividend cuts that lead to massive stock price declines can create opportunities to buy stocks at very cheap prices. Finally, it is important to try to determine what the path ahead for the dividend is after a dividend cut. Sometimes a company may slash its dividend but communicate to investors that it is a temporary capital allocation pivot and that they plan to grow the dividend at a solid clip moving forward. However, at other times, a dividend cut reflects the fact that the company is deprioritizing its dividend payout in favor of other capital allocation priorities such as growth investments, acquisitions, debt reduction, and/or stock buybacks and has no plans to grow its dividend for the foreseeable future. Investor Takeaway  A dividend cut is one of the worst things that an income investor can hear from a press release from one of their stock holdings. While no one can completely dividend cut-proof their income portfolio, by keeping an eye out for common warning signs and prudently responding when dividend cuts do occur, dividend investors can minimize the chances that they get hit with a dividend cut and mitigate some of the long-term impacts on their passive income stream.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428316466"}