S&P 500   4,690.80 (+0.09%)
DOW   35,663.68 (-0.16%)
QQQ   398.95 (+0.28%)
AAPL   174.61 (+2.00%)
MSFT   332.73 (-0.65%)
FB   331.05 (+2.55%)
GOOGL   2,946.33 (+0.03%)
AMZN   3,527.18 (+0.11%)
TSLA   1,064.67 (+1.23%)
NVDA   320.65 (-1.12%)
BABA   125.91 (+0.29%)
NIO   35.08 (+5.92%)
CGC   11.13 (+4.61%)
AMD   145.18 (+0.23%)
GE   98.53 (+1.00%)
MU   86.01 (+0.21%)
T   23.20 (+0.52%)
F   19.86 (-0.50%)
DIS   153.34 (+1.68%)
PFE   51.47 (-0.48%)
AMC   33.01 (+6.35%)
ACB   6.69 (+4.86%)
BA   211.71 (+1.38%)
S&P 500   4,690.80 (+0.09%)
DOW   35,663.68 (-0.16%)
QQQ   398.95 (+0.28%)
AAPL   174.61 (+2.00%)
MSFT   332.73 (-0.65%)
FB   331.05 (+2.55%)
GOOGL   2,946.33 (+0.03%)
AMZN   3,527.18 (+0.11%)
TSLA   1,064.67 (+1.23%)
NVDA   320.65 (-1.12%)
BABA   125.91 (+0.29%)
NIO   35.08 (+5.92%)
CGC   11.13 (+4.61%)
AMD   145.18 (+0.23%)
GE   98.53 (+1.00%)
MU   86.01 (+0.21%)
T   23.20 (+0.52%)
F   19.86 (-0.50%)
DIS   153.34 (+1.68%)
PFE   51.47 (-0.48%)
AMC   33.01 (+6.35%)
ACB   6.69 (+4.86%)
BA   211.71 (+1.38%)
S&P 500   4,690.80 (+0.09%)
DOW   35,663.68 (-0.16%)
QQQ   398.95 (+0.28%)
AAPL   174.61 (+2.00%)
MSFT   332.73 (-0.65%)
FB   331.05 (+2.55%)
GOOGL   2,946.33 (+0.03%)
AMZN   3,527.18 (+0.11%)
TSLA   1,064.67 (+1.23%)
NVDA   320.65 (-1.12%)
BABA   125.91 (+0.29%)
NIO   35.08 (+5.92%)
CGC   11.13 (+4.61%)
AMD   145.18 (+0.23%)
GE   98.53 (+1.00%)
MU   86.01 (+0.21%)
T   23.20 (+0.52%)
F   19.86 (-0.50%)
DIS   153.34 (+1.68%)
PFE   51.47 (-0.48%)
AMC   33.01 (+6.35%)
ACB   6.69 (+4.86%)
BA   211.71 (+1.38%)
S&P 500   4,690.80 (+0.09%)
DOW   35,663.68 (-0.16%)
QQQ   398.95 (+0.28%)
AAPL   174.61 (+2.00%)
MSFT   332.73 (-0.65%)
FB   331.05 (+2.55%)
GOOGL   2,946.33 (+0.03%)
AMZN   3,527.18 (+0.11%)
TSLA   1,064.67 (+1.23%)
NVDA   320.65 (-1.12%)
BABA   125.91 (+0.29%)
NIO   35.08 (+5.92%)
CGC   11.13 (+4.61%)
AMD   145.18 (+0.23%)
GE   98.53 (+1.00%)
MU   86.01 (+0.21%)
T   23.20 (+0.52%)
F   19.86 (-0.50%)
DIS   153.34 (+1.68%)
PFE   51.47 (-0.48%)
AMC   33.01 (+6.35%)
ACB   6.69 (+4.86%)
BA   211.71 (+1.38%)

Recent Dividend Cuts

Below you will find a list of publicly-traded companies, exchange traded funds (ETFs) and real-estate investment trusts (REITs) that have recently lowered the amount of their dividend payments.

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CompanyAnnouncement DateAmountPrevious AmountDecrease AmountYieldEx-DatePayable DateIndicator(s)
ENB
Enbridge
12/7/2021$0.6730$0.6740-0.15%6.96%2/14/20223/1/2022
PBA
Pembina Pipeline
12/6/2021$0.1640$0.1685-2.67%6.48%12/30/20211/14/2022News Coverage
COP
ConocoPhillips
12/6/2021$0.20$0.46-56.52%1.07%12/31/20211/14/2022Analyst Revision
STM
STMicroelectronics
12/5/2021$0.0660$0.15-56.00%0.55%12/13/202112/21/2021Analyst Downgrade
LAUR
Laureate Education
12/3/2021$0.58$7.01-91.73%12/13/202112/28/2021
SBR
Sabine Royalty Trust
12/3/2021$0.3130$0.3750-16.53%9.03%12/14/202112/29/2021
NUO
Nuveen Ohio Quality Municipal Income Fund
12/3/2021$0.0250$0.0418-40.19%3.7%12/14/202112/31/2021Negative News
MFV
MFS Special Value Trust
12/3/2021$0.0457$0.0458-0.26%8.2%12/14/202112/31/2021
CIF
MFS Intermediate High Income Fund
12/3/2021$0.0187$0.0189-0.95%8.0%12/14/202112/31/2021
MGF
MFS Government Markets Income Trust
12/3/2021$0.0263$0.0264-0.45%7.8%12/14/202112/31/2021
PTY
PIMCO Corporate & Income Opportunity Fund
12/3/2021$0.1188$0.13-8.62%8.06%12/10/20211/3/2022
EMF
Templeton Emerging Markets Fund
12/2/2021$0.4051$0.7556-46.39%2.4%12/14/202112/31/2021
VKQ
Invesco Municipal Trust
12/2/2021$0.0507$0.0524-3.24%4.5%12/13/202112/31/2021
VMO
Invesco Municipal Opportunity Trust
12/2/2021$0.0518$0.0529-2.08%4.6%12/13/202112/31/2021
VGM
Invesco Trust for Investment Grade Municipals
12/2/2021$0.0521$0.0538-3.16%4.6%12/13/202112/31/2021
VCV
Invesco California Value Municipal Income Trust
12/2/2021$0.0464$0.0475-2.32%4.0%12/13/202112/31/2021
GIM
Templeton Global Income Fund
12/1/2021$0.0350$0.0355-1.41%7.85%12/14/202112/31/2021News Coverage
TBNK
Territorial Bancorp
12/1/2021$0.10$0.50-80.00%12/9/202112/23/2021
TLT
iShares 20 Year Treasury Bond ETF
11/30/2021$0.1840$0.1880-2.13%1.45%12/1/202112/7/2021News Coverage
SKOR
FlexShares Credit-Scored US Corporate Bond Index Fund
11/30/2021$0.0750$0.0780-3.85%1.69%12/1/202112/7/2021Negative News
PFF
iShares Preferred and Income Securities ETF
11/30/2021$0.1230$0.1370-10.22%3.85%12/1/202112/7/2021
IUSB
iShares Core Total USD Bond Market ETF
11/30/2021$0.0670$0.0850-21.18%1.52%12/1/202112/7/2021
IEI
iShares 3-7 Year Treasury Bond ETF
11/30/2021$0.0760$0.0780-2.56%0.7%12/1/202112/7/2021
IBTJ
iShares iBonds Dec 2029 Term Treasury ETF
11/30/2021$0.0140$0.0150-6.67%0.67%12/1/202112/7/2021
IBTI
iShares iBonds Dec 2028 Term Treasury ETF
11/30/2021$0.0210$0.0220-4.55%1.0%12/1/202112/7/2021
GNMA
iShares GNMA Bond ETF
11/30/2021$0.0060$0.0670-91.04%0.14%12/1/202112/7/2021Negative News
FALN
iShares Fallen Angels USD Bond ETF
11/30/2021$0.0770$0.0810-4.94%3.14%12/1/202112/7/2021Negative News
EMB
iShares J.P. Morgan USD Emerging Markets Bond ETF
11/30/2021$0.3570$0.3580-0.28%3.97%12/1/202112/7/2021
DOOO
BRP
11/30/2021$0.1020$0.1040-1.92%0.53%12/30/20211/14/2022Earnings Report
Analyst Report
Analyst Revision
News Coverage
ANGL
VanEck Vectors Fallen Angel High Yield Bond ETF
11/30/2021$0.0980$0.1040-5.77%3.63%12/1/202112/7/2021Negative News
ORAN
Orange
11/30/2021$0.3382$0.4730-28.51%6.9%12/9/202112/30/2021Analyst Downgrade
VTC
Vanguard Total Corporate Bond ETF ETF Shares
11/29/2021$0.1690$0.1740-2.87%2.22%12/1/202112/6/2021
VGLT
Vanguard Long-Term Treasury Index Fund ETF Shares
11/29/2021$0.1340$0.1360-1.47%1.76%12/1/202112/6/2021News Coverage
VCSH
Vanguard Short-Term Corporate Bond Index Fund ETF Shares
11/29/2021$0.0990$0.1010-1.98%1.46%12/1/202112/6/2021
VCLT
Vanguard Long-Term Corporate Bond Index Fund ETF Shares
11/29/2021$0.2610$0.2670-2.25%2.92%12/1/202112/6/2021
VCIT
Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares
11/29/2021$0.1670$0.1730-3.47%2.15%12/1/202112/6/2021
ISDX
Invesco RAFI Strategic Developed ex-US ETF
11/29/2021$0.17$0.3080-44.81%2.32%12/20/202112/31/2021Negative News
BNDX
Vanguard Total International Bond Index Fund ETF Shares
11/29/2021$0.0340$0.0390-12.82%0.71%12/1/202112/6/2021
BNDW
Vanguard Total World Bond ETF
11/29/2021$0.0850$0.0890-4.49%1.27%12/1/202112/6/2021Negative News
TEF
Telefónica
11/26/2021$0.1657$0.2371-30.13%6.3%12/1/202112/29/2021
SLG
SL Green Realty
11/23/2021$0.3033$3.6396-91.67%4.97%11/29/202112/15/2021Dividend Increase
Analyst Report
Analyst Revision
News Coverage
LDSF
First Trust Low Duration Strategic Focus ETF
11/22/2021$0.0290$0.0320-9.38%1.75%11/23/202111/30/2021
FTSL
First Trust Senior Loan Fund
11/22/2021$0.1220$0.1250-2.40%3.07%11/23/202111/30/2021
FEMB
First Trust Emerging Markets Local Currency Bond ETF
11/22/2021$0.1560$0.1670-6.59%6.04%11/23/202111/30/2021
DHF
BNY Mellon High Yield Strategies Fund
11/22/2021$0.0190$0.0220-13.64%7.38%12/6/202112/21/2021
DGRS
WisdomTree U.S. SmallCap Quality Dividend Growth Fund
11/22/2021$0.0750$0.08-6.25%1.86%11/23/202111/29/2021
IHYF
Invesco High Yield Bond Factor ETF
11/19/2021$0.0890$0.0920-3.26%4.21%11/22/202111/30/2021Positive News
BSMQ
Invesco BulletShares (R) 2026 Municipal Bond ETF
11/19/2021$0.0230$0.0240-4.17%1.07%11/22/202111/30/2021
BSMP
Invesco BulletShares (R) 2025 Municipal Bond ETF
11/19/2021$0.0140$0.0150-6.67%0.65%11/22/202111/30/2021
BSMN
Invesco BulletShares (R) 2023 Municipal Bond ETF
11/19/2021$0.0090$0.01-10.00%0.42%11/22/202111/30/2021
BSJS
Invesco BulletShares 2028 High Yield Corporate Bond ETF
11/19/2021$0.0880$0.0890-1.12%4.21%11/22/202111/30/2021Positive News
PAX
Patria Investments
11/19/2021$0.14$0.4630-69.76%5.0%12/1/202112/16/2021
NTES
NetEase
11/19/2021$0.2250$0.24-6.25%0.7%11/30/202112/16/2021
NGG
National Grid
11/19/2021$1.1573$2.2812-49.27%5.1%12/2/20211/19/2022
MHF
Western Asset Municipal High Income Fund
11/18/2021$0.0198$0.0218-9.17%2.8%12/22/202112/31/2021
VOD
Vodafone Group
11/17/2021$0.5142$0.5491-6.35%9.9%11/24/20212/4/2022
CMP
Compass Minerals International
11/15/2021$0.15$0.72-79.17%1.05%12/9/202112/20/2021
HQL
Tekla Life Sciences Investors
11/15/2021$0.42$0.43-2.33%8.2%11/23/202112/31/2021
HQH
Tekla Healthcare Investors
11/15/2021$0.51$0.52-1.92%8.1%11/23/202112/31/2021
SNLN
Highland/iBoxx Senior Loan ETF
11/12/2021$0.0430$0.0470-8.51%3.22%11/15/202111/30/2021
AGNC
AGNC Investment
11/11/2021$0.12$0.18-33.33%8.98%11/29/202112/9/2021
CCAP
Crescent Capital BDC
11/10/2021$0.0550$0.41-86.59%1.08%12/2/202112/15/2021
TSM
Taiwan Semiconductor Manufacturing
11/10/2021$0.3911$0.4941-20.84%1.3%3/16/20224/14/2022
SCM
Stellus Capital Investment
11/9/2021$0.02$0.0933-78.56%7.6%1/27/20222/15/2022
FSK
FS KKR Capital
11/8/2021$0.62$0.65-4.62%11.39%12/14/20211/4/2022
UGP
Ultrapar Participações
11/8/2021$0.1168$0.1169-0.09%5.13%11/10/202111/19/2021News Coverage
CSTE
Caesarstone
11/8/2021$0.10$0.21-52.38%3.0%11/16/202111/30/2021
AVA
Avista
11/8/2021$0.4225$0.4230-0.12%4.2%11/18/202112/15/2021Analyst Revision
ITUB
Itaú Unibanco
11/5/2021$0.0020$0.0350-94.29%12/1/20211/13/2022
VSMV
VictoryShares US Multi-Factor Minimum Volatility ETF
11/5/2021$0.0530$0.0550-3.64%1.58%11/8/202111/10/2021
VSDA
VictoryShares Dividend Accelerator ETF
11/5/2021$0.0250$0.0690-63.77%0.65%11/8/202111/10/2021
HMC
Honda Motor
11/5/2021$0.3870$0.3950-2.03%5.24%9/28/202112/8/2021Analyst Upgrade
CSF
VictoryShares US Discovery Enhanced Volatility Wtd ETF
11/5/2021$0.0170$0.0690-75.36%0.31%11/8/202111/10/2021
CSB
VictoryShares US Small Cap High Div Volatility Wtd ETF
11/5/2021$0.06$0.2290-73.80%1.15%11/8/202111/10/2021
CSA
VictoryShares US Small Cap Volatility Wtd ETF
11/5/2021$0.0190$0.0740-74.32%0.32%11/8/202111/10/2021
CIZ
VictoryShares Developed Enhanced Volatility Wtd ETF
11/5/2021$0.0180$0.1380-86.96%0.62%11/8/202111/10/2021
CIL
VictoryShares International Volatility Wtd ETF
11/5/2021$0.0220$0.1830-87.98%0.58%11/8/202111/10/2021Gap Up
CID
VictoryShares International High Div Volatility Wtd ETF
11/5/2021$0.0310$0.1870-83.42%1.15%11/8/202111/10/2021
CFO
VictoryShares US 500 Enhanced Volatility Wtd ETF
11/5/2021$0.0370$0.0780-52.56%0.58%11/8/202111/10/2021
CEY
VictoryShares Emerging Market High Div Volatility Wtd ETF
11/5/2021$0.0210$0.1640-87.20%1.06%11/8/202111/10/2021
CDL
VictoryShares US Large Cap High Div Volatility Wtd ETF
11/5/2021$0.0810$0.1720-52.91%1.64%11/8/202111/10/2021
CDC
VictoryShares US EQ Income Enhanced Volatility Wtd ETF
11/5/2021$0.0930$0.1870-50.27%1.66%11/8/202111/10/2021
MGA
Magna International
11/5/2021$0.3470$0.43-19.30%1.67%11/18/202112/3/2021
TX
Ternium
11/5/2021$0.80$2.10-61.90%7.5%11/12/202111/19/2021
AG
First Majestic Silver
11/5/2021$0.0049$0.0060-18.33%0.1%11/16/202111/30/2021Analyst Upgrade
SCU
Sculptor Capital Management
11/5/2021$0.28$0.54-48.15%12.7%11/12/202111/22/2021
QRTEA
Qurate Retail
11/4/2021$1.25$1.50-16.67%11/12/202111/22/2021
SWCH
Switch
11/4/2021$0.0520$0.0525-0.95%0.9%11/18/202112/1/2021
OEC
Orion Engineered Carbons
11/4/2021$0.02$0.20-90.00%0.4%1/4/20221/12/2022
EURN
Euronav
11/4/2021$0.0210$0.03-30.00%0.85%11/22/202111/30/2021
CBNK
Capital Bancorp
11/4/2021$0.05$0.09-44.44%0.72%11/12/202111/30/2021Positive News
MIXT
MiX Telematics
11/4/2021$0.0647$0.0687-5.85%1.6%11/18/202112/2/2021
BGFV
Big 5 Sporting Goods
11/4/2021$0.25$1.25-80.00%3.1%11/30/202112/15/2021
CAH
Cardinal Health
11/4/2021$0.4908$0.4910-0.04%3.99%12/31/20211/15/2022
OTEX
Open Text
11/3/2021$0.1780$0.2209-19.42%1.38%12/2/202112/22/2021
LVHD
Legg Mason Low Volatility High Dividend ETF
11/3/2021$0.2310$0.2490-7.23%2.46%11/4/202111/9/2021
HL
Hecla Mining
11/3/2021$0.0038$0.0110-65.91%0.0059%11/18/202112/3/2021
GAM
General American Investors
11/3/2021$0.36$0.37-2.70%0.78%11/12/202112/30/2021News Coverage
FNV
Franco-Nevada
11/3/2021$0.2420$0.30-19.33%0.68%12/8/202112/23/2021
RGR
Sturm, Ruger & Company, Inc.
11/3/2021$0.79$1.00-21.00%3.89%11/12/202111/30/2021

For many investors, the object of investing in dividend-paying stocks is to either pocket or re-invest the regular dividends they receive as a reward for their owning the company’s stock. Dividend stocks are typically not growth stocks and while they may not have the downside volatility that growth stocks have, they also do not present as large of an upside return in share price.

The dividend helps to boost the stock’s total return. Which, particularly in down markets, can help make owning these stocks more profitable than owning growth stocks. Many dividend-paying companies have solid balance sheets that allow them to weather tough financial conditions without having to cut the dividend. In fact, a select group of companies are Dividend Aristocrats, which means they have increased their dividend payment for 25 consecutive years. And an even smaller group of companies are Dividend Kings, which means they have increased their dividend payment for over 50 years.

Therefore, when a company cuts or suspends its dividend it is seen as a sign of financial weakness that has a material effect on the wealth of shareholders. In the great recession, nearly $100 billion in dividend income was lost in 2008 and 2009.

However, while a dividend cut is generally due to severe financial pressure, there are occasions when a company cuts its dividend for less odious reasons. It’s always up to an investor to perform their due diligence when understanding the reason for a dividend cut.

Introduction

A dividend cut is an event that a company takes when, for a variety of reasons, it decides to reduce the amount of money it pays out to shareholders as a dividend. In a worst-case scenario, a company may decide to stop paying out dividends entirely (i.e. suspends its dividend). Either of these scenarios will have a negative effect on the company’s stock.

Dividends are paid out of a company’s earnings. So a dividend cut is evidence that a company either does not have, or is not forecasting that it will have, enough revenue to maintain its dividend at its current level.

In this article, we provide an overview of why dividends are important, how they are calculated and how they impact a stock’s total return. With that as a background, we’ll go into some detail about why a company may cut its dividend. We’ll also give you some idea of what signals investors may get that lets them know that a company is getting ready to cut its dividend. We’ll also go over the effect it may have on a company’s stock price and why sometimes the stock price can reverse course quickly.

Why are dividends important?

Before describing why a company would cut its dividend, let’s take a moment to remember why dividends are issued in the first place. A dividend is a portion of a company’s profits (or earnings) expressed as a percentage.

A company typically issues a dividend as a way of rewarding its shareholders for their investment. And why would they do this? After a company pays their short-term liabilities, they can either allocate a share of their profit to reinvest into the business or to give back to shareholders.

Companies can choose to pay dividends quarterly, semi-annually or annually.

However, it’s important to note that a company is not under any obligation to offer a dividend, nor does the issuing of a dividend legally obligate them to retain or sustain that dividend. The decision to pay a dividend is voted on by a company’s board of directors.

How are dividends calculated?

Just as a company is under no obligation to issue a dividend, it is not obligated to calculate its dividend in a specific way. The amount of a company’s dividend is typically calculated using either a net income or a free cash flow model.

There are a couple of notable exceptions to this statement. Real estate investment trusts (REITs) and master limited partnerships (MLPs) are legally required to pay a majority (at least 90%) of their cash flow as dividends. For capital intensive companies, free cash flow is a more important measurement than net income in determining their dividend payout.

A company’s dividend is expressed as a percentage known as the dividend yield. A dividend yield is the annual amount of a company’s dividend divided by the current stock price. For example a company that paid out $2.50 per year in dividends with a stock price of $50 has a dividend yield of 5%.

Dividend yield, however, can be a little bit of a deceptive metric. Some investors mistakenly invest in stocks with the highest dividend yield. But since the dividend yield can be affected by the stock price, if the stock rises or falls, the dividend yield can change dramatically. If the stock price rises, the yield will go down. If the stock price falls, the yield will go up.

In our earlier example, if the $50 stock increased to $55, the yield would fall to 4.54%. Conversely, if the stock price fell to $45, the yield would increase to 5.56%.

A dividend impacts an investor’s total return

The significance of a dividend is reflected in a stock’s total return. This is an investor’s gain or loss on a stock plus the amount of any dividend.

Here’s an example:

An investor buys 100 shares of stock in company X for $50 and the stock rises in value by $5 for the next 12 months. At the end of that period of time, the investment’s total return is 10% or $500 ($5 x 100 = 500). The investment is now worth $5,500.

Another investor buys 100 shares of stock in company Y for $40. That stock increases in value by $4 over the next 12 months. However, the stock also paid $1.20 per year. That means the stock’s total return was $5.20 per share, or 13%.

When an investor is buying a growth stock (e.g. most big tech stocks), they aren’t expecting to be paid a dividend. These companies are typically on the leading edge of their sectors, they are constantly reinvesting for the purpose of growing their business. These companies reward their shareholders with profits that grow quickly and a higher share price. In general, growth stocks tend to be volatile which means they are only appropriate for investors with a higher risk tolerance.

On the other hand, if an investor is buying a blue-chip stock, they are looking for value. And a dividend provides value. The same is true of income stocks such as REITs and utility stocks.

Why do companies cut their dividends?

In most cases, a company will cut its dividend because of some underlying financial weakness. This may be due to slumping profits which may be due to declining revenue or narrower margins. When earnings decline, a company needs to increase its payout rate or access capital from other sources (e.g. short-term investments or debt) to sustain its dividend.

However, this can put the company in a dangerous position. By prioritizing its dividend the company could wind up lacking cash to pay its short-term debt obligations. That would lead to a default, which is why the vast majority of companies would rather slash or suspend its dividend when faced with declining earnings.

However, while this is a responsible course of action, many investors will perceive it as a negative. This is simply because a company is acknowledging that they are not likely to have enough money available to pay out the same dividend that they had in the past.

There are times when a company cuts their dividend for other reasons than financial weakness. For example, stock buybacks have come back into favor. And many companies use this as a way to boost their share price. Here’s how it benefits shareholders. When a company buys back shares from the market the number of outstanding shares shrinks. The effect of having fewer shares available for investors to purchase is that each individual shareholder’s shares have more value.  

What are the signs that a company is about to cut its dividend?

Investors can calculate a company’s payout ratio to test how secure its dividend may be. For a company to sustain its dividend, it has to have enough net income to support making that payment. If a company pays out 50 cents per share in dividends each quarter and has net earnings per share for that quarter of $2, the payout ratio is 25% (50/2 = 0.25).

Generally speaking, the lower the payout ratio the more secure the dividend. However as pointed out above REITs and MLPs have legal requirements that require a high payout ratio.

If a company’s payout ratio increases significantly, particularly compared to other companies in its sector, that may be a sign that the company is in financial duress.

There are other circumstantial signs that a company may be about to cut its dividend. For example, if the broader economic outlook becomes weaker, that could be a sign that a company that would be affected by recessions might have to cut its dividend in an effort to conserve cash.

A company may also be looking to grow through acquisition. If this is the case, a company may look to reduce or suspend its dividend temporarily to ensure it has enough cash to make the purchase.

What did dividend cuts look like during the great recession?

As mentioned above one of the times when a company is most likely to cut its dividend is during a recession. This was illustrated in a big way at the onset of “the great recession” in 2008 and 2009. In 2008, 61 companies cut their dividends resulting in $40.6 billion in lost dividend income.

However, just a few months into 2009, an additional 41 companies cut their dividend payouts resulting in an additional $40.8 billion in lost income for shareholders. By the time 2009 came to a close that number would rise to $52.6 billion.

What happens to a stock’s performance when it cuts its dividend?

In virtually all cases, a stock will decline in value when a company cuts its dividend. That’s because, whether the dividend was cut for valid reasons or not, the investing community perceives that the company is going through financial challenges. The resulting uncertainty will lower the value of the stock at least in the short term.

If the reason for the dividend cut is later seen as being insignificant, the stock may quickly rise. A good example of this occurred at the onset of the coronavirus pandemic. Entire sectors such as hospitality, airlines, and automotive were   shut down. In an effort to conserve cash many of these companies either suspended their dividend or cut it dramatically.

At first, these stocks plummeted. However, as more news became available, not to mention the government’s stimulus effort, it became apparent that many of these companies would receive money to keep them afloat and stock prices began to rise.

A dividend cut however has the effect of decreasing the wealth of shareholders because of the loss of dividend income. For many investors, seeing a share price go down is a loss of wealth that they can make up, given enough time. However, when a shareholder loses dividend income it has a more lasting effect. That’s money that they won’t get back. For many investors that may sour them on a stock forever.

The final word on dividend cuts/decreases

Dividends are a measure of a company’s financial stability. That’s why a dividend cut or outright suspension of a dividend is so devastating to a company’s reputation. There are times, particularly during “Black Swan” events such as 9/11 when investors understand that a dividend cut is not a sign of fundamental problems within a company. And in these cases, it may not be in a shareholder’s best interest to sell the stock. In fact selling the stock may do more harm to their portfolio than the loss of dividend income.

Like all investment decisions, it’s up to individual investors to decide what a dividend cut means for their portfolio.


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