Comments on Dividend Growth Investor: Is negative dividend news good for the stock price...

Ethan,The only reason why you should be in a busin...

2008-11-18T08:13:00.000-08:00

Ethan,

The only reason why you should be in a business is not to be emotionally attached to it, but to make money off of it. When the business tells you that it can't support your lavish lifestyle by sending out dividends your way, because the CEO must get paid his million dollar salary, then why should I be the one holding on? In the 21st century stock market, the investor is the last one to get paid. If the dividend is cut, I would demand the CEO to get no pay.
Furthermore a dividend cut tells you that the business is not doing as well as you though it was.. And your analysis might be wrong. If the business starts increasing dividends for 10 consecutive years I will start buying again. Untill then my money will be invested in something else.

I do include the one day change from the opening price on average, as an indication that investors could be better off on average if they sell immediately after a dividend cut. My observation is that investors underreact to dividend cuts, as they believe that they would help the companies in their cash situation. When GM cut its dividends in July the stock rallied temporarily.. But it's down 70% or more since then..

As someone who has been observing dividend cutters blaming the "economy" for their bad financial position, when in fact the business was not managed properly... and the companies ultimately went under makes me a big disbeliever of dividend cutters.

Anyways.. I am sure that some companies that cut their dividends will do better than the pack. But on aggregate, dividend cutters or eliminators are something I tend to personally dispose of.

To summarize, you have to " Cut your losses and let your profits run"

Hey there, thanks for including my argument in you...

2008-11-18T00:53:00.000-08:00

Hey there, thanks for including my argument in your post... kick ass! However it is slightly altered. My stance isn't a one-size-fits-all, it only applies the business I own and understand.

Furthermore, I believe our main difference boils down to time or better put, the amount of time you plan to hold specific investments.

You are measuring performance of these stocks after a dividend suspension or cut, but your definition of performance, at least in this post, is a single day change in their stock price. What?! To me this is irrelevant.

Now I'm not acquainted with any of the companies you've referenced and
I don't want to get to meta here, but my investment approach involves owning businesses, businesses I understand, feel confidant in, and aren't going to discard into the waist basket due to a divined cut unless of course the economics of their business has in fact materially changed for good.

Hope that makes sense.

One last thought, I think it would be cool, since you talk about discovering market inefficiencies, that you post about investors and speculators overreaction to bad news i.e. dividend cuts and suspensions.

That seems to be my observation as well.

2008-11-17T06:53:00.000-08:00

That seems to be my observation as well.

My observation from trying to be an informed inves...

2008-11-16T15:40:00.000-08:00

My observation from trying to be an informed investor is that stock prices always seem to get hammered after a dividend cut.

My observation from trying to be an informed inves...

2008-11-16T15:39:00.000-08:00

My observation from trying to be an informed investor is that stock prices always seem to get hammered after a dividend cut.