Comments on Dividend Growth Investor: Should you sell after a dividend cut?

Peppercom,I realize these are difficult times to b...

2008-11-12T13:55:00.000-08:00

Peppercom,

I realize these are difficult times to be in business. I appreciate the link and hope that your company survives the credit meltdown.

Best Regards,

DGI

I noticed that you’ve been talking about Genworth ...

2008-11-12T12:34:00.000-08:00

I noticed that you’ve been talking about Genworth Financial’s performance recently. I work for Genworth’s public relations firm and I just wanted to make sure you saw this 11/11 statement:

http://www.genworth.com/content/etc/medialib/genworth/us/en/pdfs.Par.68208.File.dat/Mike%20Customer%20Message.pdf

Ethan,Theoretically it is true that a dividend cut...

2008-11-11T06:29:00.000-08:00

Ethan,

Theoretically it is true that a dividend cut is good as it allows companies to have more flexibility with their cash flows.

However my main objective in buying dividend stocks is to get a rising dividend income. If this does not happen, then why should I hold on to a loser and let my funds sit idle when I could re-invest my proceeds in something that increases its dividends?

Typically US companies mainly increase or leave the dividend unchanged. (Us shareholders are spoiled in this situation). If management has no other option but to cut the dividends, which in itself is a last resort of action and management knows about those concerns, then management de facto admits that they have no control over the situation.. Furthermore they tell you that they are bearish on their business and believe that it won't bring in enough cash for the foreseeable future. Why should I hold on to such stocks?

With hindsight, selling stocks in the S&P 500 after a dividend cut in 2008 would have saved you a lot of money.. Because this was simply an indicator that all hell will break loose pretty soon..

If a company has had a history of raising dividends for decades, and then all of a sudden they tell me that this time it is different, i simply don't believe them.. and show my vote by selling..

So a company who slashes its divined is admitting ...

2008-11-10T16:00:00.000-08:00

So a company who slashes its divined is admitting times are tough; or at least their times are tough.

On average, as you said, companies who slash or suspend their dividends underperform the S&P 500 over time, which means half do worse and HALF do better.

If you own an interest in a business and your committed for a long while and you understand the business, it may not always be gospel to ditch the stock upon the announcement of a dividend cut or suspension.

It may be the best choice at this or that time for the company, slashing or removing it's dividend that is, and if you understand that, maybe it's a time to buy a larger interest?

Just a thought.

Ethan