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🤔When Dividends Dry Up: What Should You Do?
Published about 2 years ago • 3 min read
Presented By: The Early Bird from MarketBeat
Official Affiliate Partner: The Early Bird from MarketBeat
Hello again, Investors!
Have you ever gone down a familiar street and noted all the buildings a company used to occupy but have now changed?
This happened to me recently on Ogden Avenue in Berwyn, IL.
I used to frequent Blockbuster Video and Radio Shack, but both are long gone.
You can add Toys "R" Us to the list, as I also passed where that magical childhood store used to be.
I spent 30 minutes looking for a common stock dividend from Toys "R" Us, and when it might have stopped, I couldn't find it.
The 2005 Annual Report only states that they currently do not pay a dividend, so if anyone reading this knows any more information, I'd love to hear it!
A tip that changed everything is one that Warren Buffett is fond of saying that he learned from Phil A. Fischer...
Think of buying a stock as buying the ENTIRE company because you are.
If you were about to buy an entire company, you wouldn't just look at the dividend or that you frequently use a product or service (like Blockbuster or Radio Shack).
You would assess who's running the company, market trends, competition, company financials, etc...
To take it a step further, I fancy myself a dividend growth investor and many in our community take ANY dividend cut as an immediate sell.
Any decline in business performance that leads to management reducing or cutting the dividend against their wishes is a massive red flag.
It's not always a death knell, as some companies, like Ford (F), suspend dividends to reinvest in the business or manage debt.
Ford suspended its dividend in 2006 and resumed it in 2012, only to briefly suspend it again in 2020 and restart again due to COVID-19.
As dividend growth investors, we focus on stable and profitable companies with solid cash flows to pay a steadily increasing dividend.
The only reasons that I can think of NOT to sell after a dividend cut would be:
It's a temporary strategic management decision to pay for a promising acquisition or expand the business.
Management is being proactive in strengthening the balance sheet during a black swan event (like the COVID-19 pandemic)
Management has a clear plan to reinstate and grow the dividend
However, a dividend cut or suspension due to declining revenue, shrinking profitability, or too-high payout ratios is an immediate sell for a dividend growth investor.
And, more often than not, stocks will struggle for quite some time after a dividend cut.
Your Turn
Please hit reply and let me know if you sell a stock after a dividend cut or hang on and how that turned out.
😁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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