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🚩Dividend Red Flags 🚩
Published over 2 years ago • 2 min read
Presented By: The Early Bird
Official affiliate partner The Early Bird
Did you catch the news that Intel (INTC) stopped paying its dividend?
This comes after a 65% cut in February 2023, and man, am I glad I sold our 100 shares at $42.05 on 11/16/2023 for a small gain, even though the price later climbed to $50 from AI FOMO.
Stock Price After Selling Intel
Experiences with AT&T (T), Leggett & Platt (LEG), V.F. Corp (VFC), and Intel (INTC) taught me a few valuable lessons about quality investing and dividend cuts:
👉Understand What You Own: Warren Buffett famously said he doesn't invest in tech because he doesn't understand it.
But that doesn't mean YOU shouldn't invest in tech.
The key is to study how successful investors think, not necessarily what they invest in.
I realized I couldn't explain why NVIDIA (NVDA) chips were superior to Intel's or make educated guesses about the company's future. This lack of understanding was a huge red flag.
👉Quality Businesses Don't Cut Dividends: Outside of economic crises, stable dividend cuts are deal-breakers for quality companies. A few studies support this:
Hartford Funds found dividend cutters & eliminators had the worst returns from 1973-2023 among S&P 500 stocks.
HartfordFunds.com
McKinsey's research (1994-2021) showed that less than 2% of large companies cut dividends annually, and almost no company over that period made a dividend cut out of choice rather than need.
McKinsey & Company
McKinsey also found that cuts typically follow 20% profit declines and falling stock prices.
🚩Watch for Red Flags: Be afraid of steadily declining stock prices, significant profitability drops, steadily shrinking free cash flow, and unusually high payout ratios. These often precede dividend cuts.
As a dividend growth investor, I'll follow a simple rule from now on: If you cut me (dividends), I'll cut you (from my portfolio). This approach should help me maintain a portfolio of quality, financially stable companies.
What stocks in your portfolio are you concerned about regarding potential dividend cuts?
Hit reply and let me know!
😁THANK YOU to everyone who responded to the last newsletter!!
🤑Rick Stambaugh from Orange Mountain Financial brings you ‘Grow Retirement Income.' He’s a seasoned pro with over 30 years in trading and a passion for guiding folks to a prosperous retirement.
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Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
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