S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
Shift in war's front seen as ships cleared to leave Ukraine
What's in Democrats' big bill? Climate, health care, savings
Demand for grocery delivery cools as food costs rise
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK
What to Expect from the Markets in a Recession
S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
Shift in war's front seen as ships cleared to leave Ukraine
What's in Democrats' big bill? Climate, health care, savings
Demand for grocery delivery cools as food costs rise
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK
What to Expect from the Markets in a Recession
S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
Shift in war's front seen as ships cleared to leave Ukraine
What's in Democrats' big bill? Climate, health care, savings
Demand for grocery delivery cools as food costs rise
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK
What to Expect from the Markets in a Recession
S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
Shift in war's front seen as ships cleared to leave Ukraine
What's in Democrats' big bill? Climate, health care, savings
Demand for grocery delivery cools as food costs rise
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK
What to Expect from the Markets in a Recession

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 or eliminated their dividend payments entirely.

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Analyst consensus is the average investment recommendation among Wall Street research analysts.
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Analyst ConsensusUpgrade to All Access to use the All Ratings Filter
CompanyAnnouncement DateAmountPrevious AmountDecrease AmountYieldEx-DatePayable DateIndicator(s)
The Herzfeld Caribbean Basin Fund Inc. stock logo
CUBA
The Herzfeld Caribbean Basin Fund
8/5/2022$0.1740$0.2650-34.34%15.82%8/19/20229/30/2022
Novo Nordisk A/S stock logo
NVO
Novo Nordisk A/S
8/5/2022$0.5836$0.7410-21.25%1.1%8/12/20228/23/2022Analyst Revision
ING Groep stock logo
ING
ING Groep
8/5/2022$0.1737$0.2452-29.15%10.1%8/12/20228/22/2022Analyst Revision
Canadian Natural Resources Limited stock logo
CNQ
Canadian Natural Resources
8/5/2022$0.5822$0.5830-0.14%4.5%9/15/202210/5/2022Dividend Announcement
AMC Entertainment Holdings, Inc. stock logo
AMC
AMC Entertainment
8/4/2022$0.01$0.03-66.67%0.18%8/12/20228/19/2022Earnings Report
Options Volume
Gap Down
High Trading Volume
Artisan Partners Asset Management Inc. stock logo
APAM
Artisan Partners Asset Management
8/4/2022$0.60$0.76-21.05%9.0%8/16/20228/31/2022Earnings Report
Analyst Revision
Genco Shipping & Trading Limited stock logo
GNK
Genco Shipping & Trading
8/3/2022$0.50$0.79-36.71%11.42%8/15/20228/23/2022Analyst Downgrade
Analyst Revision
News Coverage
Dorian LPG Ltd. stock logo
LPG
Dorian LPG
8/3/2022$1.00$2.50-60.00%8/12/20229/2/2022Analyst Revision
Cedar Fair, L.P. stock logo
FUN
Cedar Fair
8/3/2022$0.30$0.9350-67.91%2.99%8/30/20229/15/2022Analyst Upgrade
Analyst Revision
Brookfield Infrastructure Partners L.P. stock logo
BIP
Brookfield Infrastructure Partners
8/3/2022$0.36$0.54-33.33%3.62%8/30/20229/29/2022Earnings Report
Analyst Revision
News Coverage
Sturm, Ruger & Company, Inc. stock logo
RGR
Sturm, Ruger & Company, Inc.
8/3/2022$0.47$0.68-30.88%2.83%8/16/20228/31/2022High Trading Volume
Petróleo Brasileiro S.A. - Petrobras stock logo
PBR
Petróleo Brasileiro S.A. - Petrobras
8/3/2022$0.1643$1.2984-87.34%44.8%8/12/20229/8/2022
DMF
BNY Mellon Municipal Income
8/3/2022$0.0240$0.0290-17.24%4.0%8/15/20228/31/2022Negative News
Mercury General Co. stock logo
MCY
Mercury General
8/3/2022$0.3175$0.6350-50.00%3.6%9/14/20229/29/2022High Trading Volume
Service Co. International stock logo
SCI
Service Co. International
8/3/2022$0.25$0.52-51.92%1.5%9/14/20229/30/2022Analyst Revision
Texas Pacific Land Co. stock logo
TPL
Texas Pacific Land
8/2/2022$3.00$23.00-86.96%0.73%9/7/20229/15/2022
DiamondRock Hospitality stock logo
DRH
DiamondRock Hospitality
8/2/2022$0.03$0.1250-76.00%1.3%9/29/202210/12/2022Negative News
Chesapeake Energy Co. stock logo
CHK
Chesapeake Energy
8/2/2022$2.32$2.34-0.85%10.5%8/16/20229/1/2022Analyst Revision
Scully Royalty Ltd. stock logo
SRL
Scully Royalty
8/2/2022$0.26$0.27-3.70%11.3%8/11/20228/26/2022
HSBC Holdings plc stock logo
HSBC
HSBC
8/2/2022$0.45$0.90-50.00%4.1%8/18/20229/29/2022
MFV
MFS Special Value Trust
8/2/2022$0.0382$0.0385-0.73%11.0%8/16/20228/31/2022News Coverage
Negative News
MFS Multimarket Income Trust stock logo
MMT
MFS Multimarket Income Trust
8/2/2022$0.0330$0.0340-2.91%9.4%8/16/20228/31/2022Negative News
CIF
MFS Intermediate High Income Fund
8/2/2022$0.0148$0.0150-1.40%10.1%8/16/20228/31/2022Negative News
MIN
MFS Intermediate Income Trust
8/2/2022$0.0226$0.0230-1.96%9.8%8/16/20228/31/2022Negative News
VPV
Invesco Pennsylvania Value Municipal Income Trust
8/2/2022$0.0425$0.0465-8.60%4.6%8/12/20228/31/2022
Delek US Holdings, Inc. stock logo
DK
Delek US
8/1/2022$0.20$0.31-35.48%2.94%8/19/20229/6/2022Earnings Report
Analyst Report
BlackRock Capital Allocation Trust stock logo
BCAT
BlackRock Capital Allocation Trust
8/1/2022$0.1040$0.1041-0.10%8.13%8/12/20228/31/2022Negative News
Apollo Investment Co. stock logo
AINV
Apollo Investment
8/1/2022$0.32$0.36-11.11%10.36%9/19/202210/11/2022Earnings Report
Vale S.A. stock logo
VALE
Vale
8/1/2022$0.3907$0.7180-45.58%21.9%8/12/20229/9/2022
AstraZeneca PLC stock logo
AZN
AstraZeneca
8/1/2022$0.4650$0.9850-52.79%2.2%8/11/20229/12/2022
Ares Commercial Real Estate Co. stock logo
ACRE
Ares Commercial Real Estate
8/1/2022$0.33$0.35-5.71%9.6%9/29/202210/17/2022Negative News
AllianceBernstein Holding L.P. stock logo
AB
AllianceBernstein
7/30/2022$0.71$0.90-21.11%6.45%8/5/20228/18/2022Ex-Dividend
Navios Maritime Partners L.P. stock logo
NMM
Navios Maritime Partners
7/30/2022$0.05$3.1875-98.43%0.67%8/8/20228/12/2022
The Marcus Co. stock logo
MCS
Marcus
7/29/2022$0.05$0.17-70.59%1.17%8/24/20229/15/2022Analyst Upgrade
Analyst Revision
Taitron Components Incorporated stock logo
TAIT
Taitron Components
7/29/2022$0.0450$0.1450-68.97%4.68%8/11/20228/31/2022Upcoming Earnings
IBTK
iShares iBonds Dec 2030 Term Treasury ETF
7/29/2022$0.0230$0.0380-39.47%1.29%8/1/20228/5/2022Negative News
IBTJ
iShares iBonds Dec 2029 Term Treasury ETF
7/29/2022$0.0270$0.0290-6.90%1.39%8/1/20228/5/2022Negative News
First Business Financial Services, Inc. stock logo
FBIZ
First Business Financial Services
7/29/2022$0.1975$0.22-10.23%2.4%8/5/20228/18/2022Ex-Dividend
Insider Buying
TransAlta Co. stock logo
TAC
TransAlta
7/29/2022$0.0388$0.04-3.00%1.4%8/31/202210/1/2022Gap Down
High Trading Volume
Relx Plc stock logo
RELX
Relx
7/29/2022$0.4443$0.4820-7.82%2.1%8/4/20229/13/2022
Fortis Inc. stock logo
FTS
Fortis
7/29/2022$0.4149$0.4227-1.85%3.6%8/18/20229/1/2022
Cenovus Energy Inc. stock logo
CVE
Cenovus Energy
7/29/2022$0.0814$0.0840-3.10%1.7%9/14/20229/29/2022
Barclays PLC stock logo
BCS
Barclays
7/29/2022$0.2094$0.2174-3.68%4.0%8/11/20229/16/2022
GasLog Partners LP stock logo
GLOP
GasLog Partners
7/29/2022$0.01$0.4345-97.70%0.72%8/5/20228/11/2022Ex-Dividend
Positive News
Core Laboratories stock logo
CLB
Core Laboratories
7/29/2022$0.01$0.55-98.18%0.22%8/5/20228/29/2022Ex-Dividend
Boise Cascade stock logo
BCC
Boise Cascade
7/28/2022$0.12$2.62-95.42%0.68%8/31/20229/15/2022Earnings Report
Analyst Revision
TC Energy Co. stock logo
TRP
TC Energy
7/28/2022$0.6990$0.72-2.92%5.16%9/29/202210/31/2022Gap Down
High Trading Volume
FS Bancorp, Inc. stock logo
FSBW
FS Bancorp
7/28/2022$0.20$0.30-33.33%2.71%8/10/20228/25/2022
Shaw Communications Inc. stock logo
SJR
Shaw Communications
7/28/2022$0.0767$0.0770-0.39%3.3%9/14/20229/29/2022Dividend Announcement
Rogers Communications Inc. stock logo
RCI
Rogers Communications
7/28/2022$0.3884$0.3960-1.92%3.4%9/8/202210/3/2022High Trading Volume
Rio Tinto Group stock logo
RIO
Rio Tinto Group
7/28/2022$2.67$3.76-28.99%11.4%8/11/20229/22/2022
Lloyds Banking Group plc stock logo
LYG
Lloyds Banking Group
7/28/2022$0.0385$0.0696-44.71%4.7%8/5/20229/22/2022Ex-Dividend
Gap Down
Dun & Bradstreet Holdings, Inc. stock logo
DNB
Dun & Bradstreet
7/28/2022$0.05$0.5225-90.43%1.28%8/31/20229/22/2022Earnings Report
North American Construction Group Ltd. stock logo
NOA
North American Construction Group
7/27/2022$0.0620$0.0623-0.48%2.25%8/30/202210/7/2022
Canadian Pacific Railway Limited stock logo
CP
Canadian Pacific Railway
7/27/2022$0.1480$0.1520-2.63%0.76%9/29/202210/31/2022
RPC, Inc. stock logo
RES
RPC
7/27/2022$0.02$0.05-60.00%1.22%8/9/20229/9/2022
Teck Resources Limited stock logo
TECK
Teck Resources
7/26/2022$0.0970$0.10-3.00%1.43%9/14/20229/29/2022
Enbridge Inc. stock logo
ENB
Enbridge
7/26/2022$0.6680$0.6690-0.15%5.99%8/12/20229/1/2022
Canadian National Railway stock logo
CNI
Canadian National Railway
7/26/2022$0.5690$0.5860-2.90%1.86%9/7/20229/29/2022
Magyar Bancorp, Inc. stock logo
MGYR
Magyar Bancorp
7/26/2022$0.03$0.12-75.00%1.0%8/3/20228/18/2022
Southern Copper Co. stock logo
SCCO
Southern Copper
7/25/2022$0.75$1.25-40.00%8.1%8/10/20228/25/2022Analyst Report
News Coverage
ASML Holding stock logo
ASML
ASML
7/25/2022$1.3991$4.1903-66.61%1.2%8/4/20228/12/2022Gap Down
PFO
Flaherty & Crumrine Preferred Income Opportunity Fund
7/25/2022$0.06$0.0655-8.40%7.3%8/23/20228/31/2022
WisdomTree U.S. Quality Dividend Growth Fund stock logo
DGRW
WisdomTree U.S. Quality Dividend Growth Fund
7/22/2022$0.0650$0.19-65.79%1.32%7/25/20227/28/2022
DGRS
WisdomTree U.S. SmallCap Quality Dividend Growth Fund
7/22/2022$0.0550$0.14-60.71%1.59%7/25/20227/28/2022
Nokia Oyj stock logo
NOK
Nokia Oyj
7/22/2022$0.0205$0.0210-2.14%0.7%7/25/20228/9/2022Positive News
Blackstone Inc. stock logo
BX
Blackstone
7/22/2022$1.27$1.32-3.79%4.7%7/29/20228/8/2022Gap Down
William Penn Bancorporation stock logo
WMPN
William Penn Bancorporation
7/22/2022$0.03$0.30-90.00%1.05%7/29/20228/11/2022
Nasdaq, Inc. stock logo
NDAQ
Nasdaq
7/21/2022$0.20$0.60-66.67%1.4%9/15/20229/30/2022
DCP Midstream, LP stock logo
DCP
DCP Midstream
7/21/2022$0.43$0.78-44.87%5.44%7/28/20228/12/2022
Mesa Royalty Trust stock logo
MTR
Mesa Royalty Trust
7/21/2022$0.0955$0.1497-36.20%9.28%7/28/202210/31/2022Upcoming Earnings
Gap Up
FTHI
First Trust BuyWrite Income ETF
7/20/2022$0.15$0.17-11.76%8.68%7/21/20227/29/2022
Absolute Software Co. stock logo
ABST
Absolute Software
7/20/2022$0.0620$0.0640-3.13%2.62%8/10/20228/26/2022Positive News
Encompass Health Co. stock logo
EHC
Encompass Health
7/20/2022$0.15$0.28-46.43%1.22%9/30/202210/17/2022Earnings Report
Analyst Revision
PermRock Royalty Trust stock logo
PRT
PermRock Royalty Trust
7/20/2022$0.0907$0.1001-9.39%12.47%7/28/20228/12/2022Upcoming Earnings
SL Green Realty Corp. stock logo
SLG
SL Green Realty
7/20/2022$0.3108$3.7510-91.71%7.64%7/28/20228/15/2022
EnLink Midstream, LLC stock logo
ENLC
EnLink Midstream
7/20/2022$0.1125$0.18-37.50%4.81%7/28/20228/12/2022
MidWestOne Financial Group, Inc. stock logo
MOFG
MidWestOne Financial Group
7/19/2022$0.2370$0.2375-0.21%3.12%8/31/20229/15/2022
PVL
Permianville Royalty Trust
7/19/2022$0.0215$0.0450-52.22%10.1%7/28/20228/12/2022Upcoming Earnings
Albertsons Companies, Inc. stock logo
ACI
Albertsons Companies
7/16/2022$0.12$48.00-99.75%1.84%7/25/20228/10/2022
Invesco High Yield Equity Dividend Achievers ETF stock logo
PEY
Invesco High Yield Equity Dividend Achievers ETF
7/15/2022$0.0660$0.0670-1.49%3.91%7/18/20227/22/2022
Mesabi Trust stock logo
MSB
Mesabi Trust
7/15/2022$0.84$1.04-19.23%12.17%7/28/20228/20/2022
New Jersey Resources Co. stock logo
NJR
New Jersey Resources
7/15/2022$0.3625$0.3630-0.14%3.3%9/23/202210/3/2022Earnings Report
USOI
Credit Suisse X-Links Crude Oil Shares Covered Call ETNs
7/15/2022$0.1695$0.2529-32.98%7/19/20227/25/2022
Ramaco Resources, Inc. stock logo
METC
Ramaco Resources
7/14/2022$0.11$0.1130-2.65%3.99%8/31/20229/15/2022
Industrial Logistics Properties Trust stock logo
ILPT
Industrial Logistics Properties Trust
7/14/2022$0.01$0.33-96.97%0.38%7/22/20228/18/2022
STAG Industrial, Inc. stock logo
STAG
STAG Industrial
7/14/2022$0.1217$0.1220-0.27%4.9%8/30/20229/15/2022
Gladstone Land Co. stock logo
LAND
Gladstone Land
7/14/2022$0.0456$0.0460-0.87%2.4%8/22/20228/31/2022Upcoming Earnings
News Coverage
Gladstone Capital Co. stock logo
GLAD
Gladstone Capital
7/14/2022$0.0675$0.0680-0.74%7.8%8/22/20228/31/2022
ICICI Bank Limited stock logo
IBN
ICICI Bank
7/13/2022$0.1120$0.1124-0.33%0.59%8/9/20228/10/2022Stock Split
Strategy Shares Nasdaq 7 Handl Index ETF stock logo
HNDL
Strategy Shares Nasdaq 7 Handl Index ETF
7/13/2022$0.1210$0.1270-4.72%7.05%7/14/20227/18/2022
Costco Wholesale Co. stock logo
COST
Costco Wholesale
7/13/2022$0.09$0.90-90.00%0.07%7/28/20228/12/2022Analyst Report
The Procter & Gamble Company stock logo
PG
Procter & Gamble
7/12/2022$0.9130$0.9133-0.03%2.51%7/21/20228/15/2022
Gladstone Commercial Co. stock logo
GOOD
Gladstone Commercial
7/12/2022$0.1250$0.1254-0.32%8.01%7/21/20227/29/2022Analyst Revision
Liberty All-Star Growth Fund, Inc. stock logo
ASG
Liberty All-Star Growth Fund
7/12/2022$0.11$0.14-21.43%9.7%7/21/20229/6/2022News Coverage
Liberty All-Star Equity Fund stock logo
USA
Liberty All-Star Equity Fund
7/12/2022$0.16$0.18-11.11%11.8%7/21/20229/6/2022
Liberty All-Star Equity Fund stock logo
USA
Liberty All-Star Equity Fund
7/12/2022$0.16$0.18-11.11%11.8%7/21/20229/6/2022
Delaware Investments Dividend and Income Fund, Inc. stock logo
DDF
Delaware Investments Dividend and Income Fund
7/12/2022$0.0610$0.0635-3.94%9.2%7/21/20227/29/2022
Templeton Global Income Fund stock logo
GIM
Templeton Global Income Fund
7/11/2022$0.0327$0.0350-6.57%9.8%7/15/20227/29/2022Positive News
VSMV
VictoryShares US Multi-Factor Minimum Volatility ETF
7/8/2022$0.0470$0.1190-60.50%1.53%7/11/20227/13/2022
Stock Dividend Cuts Happen Are You Ready?

The object of dividend investors is income. The income from dividend-paying stocks can be profit and income or re-invested but what about the original capital? 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 biggest risk for Dividend stocks is dividend cuts. A dividend cut is when the payment is reduced or suspended altogether and it is rarely down for good reasons.

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 their dividend, but not all.

There is a select group of companies called Dividend Aristocrats which means they are S&P 500 (NYSEARCA: SPY)companies that 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 payments for over 50 years. These companies are assumed to be financially strong and come with very low risk.

Therefore, when a company cuts or suspends its dividend it is seen as a sign of financial weakness and that has a material effect on the wealth of shareholders. When dividends get cut stock prices fall. In the great recession, nearly $100 billion in dividend income was lost in 2008 and 2009 and that drove the stock market down by 50%.

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.

Dividend Cuts Improve Cash Flow And The Balance Sheet

A dividend cut is a serious event that a company takes as a last-step resort to curb cash bleed and shore up balance sheets. When an S&P 500 company decides to reduce the amount of money it pays to shareholders as a dividend it has a far-reaching repercussion that can leave slow-moving investors with very large losses. In a worst-case scenario, a company may decide to stop paying out dividends entirely (i.e. suspend its dividend) which will have an even worse impact on share prices.

Dividends are paid out of a company’s earnings, so long as earnings are good the dividend should be consistent but there are other factors like debt, too. In one way, a dividend cut is evidence that a company does not have, or is not forecasting that it will have, enough revenue, earnings, cash flow, or cash on hand to maintain its dividend at its current level without some change to the fundamentals.

Why Are Dividends Important, Cash Flow!

A dividend is a portion of a company’s profits (or earnings) expressed as a percentage of its price. Assuming the dividend amount remains constant, the yield goes up when the stock price falls and goes down when the stock price rise.

A company issues a dividend as a way of rewarding its shareholders for their investment. After a company pays its short-term liabilities, it can either allocate a share of its profit to reinvest into the business or to give back to shareholders. In the best cases, a company can pay a dividend, buy back shares, and self-fund growth initiatives while paying down and servicing debt too.

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

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.

Just as a company is under no obligation to issue a dividend, it is not obligated to calculate its dividend in a specific way unless there is a managed distribution plan. An MDP could result in a fluctuating payment so be sure to check on that when doing your research. Otherwise, the company pays what it pays.

There are a couple of other notable exceptions to this statement though. 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. When cash flow is down the dividend is down.

For investors, 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 pays out $2.50 per year in dividends with a stock price of $50 has a dividend yield of 5%.

How A Dividend Impacts The Total Return

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

Why Do Companies Cut Their Dividends?

In most cases, a company will cut its dividend because of underlying financial weakness. This may be due to declining revenue, slumping profits, or unmanageable debt. When cash flow declines, a company needs to increase its earnings or access capital from other sources (e.g. short-term investments or debt) to sustain its dividend and that is not always possible.

Prioritizing its dividend could leave the company unable to pay its short-term debt obligations. That could lead to a default which is why the vast majority of companies would rather slash or suspend its dividend.

While this is a responsible course of action, many investors perceive it as a negative for the company’s value and it usually is. This is simply because a company is acknowledging a weakened financial position and inability to pay out the same dividend.

There are times when a company cuts its dividend for other reasons than financial weakness, however. For example, stock buybacks have come back into favor and may take the place of dividends. Here’s how it benefits shareholders. When a company buys back shares from the market the number of outstanding shares shrinks and makes each one more valuable relative to the whole company.

Which Companies Will Cut Their Dividends?

Investors can calculate a company’s payout ratio as a gauge of how safe a 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, 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 the company is under 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 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.

When Dividends Are Cut Stock Prices Fall

In virtually all cases, a stock will decline in value when a company cuts its dividend. That’s because 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 insignificant, the stock may quickly rise but don’t count on that happening. A good example of this occurred at the onset of the coronavirus pandemic. Entire sectors were shut down so, in an effort to conserve cash, many of these companies suspended their dividend or cut it dramatically but then later reinstated them.

Dividend Cuts, Beware The Dangers

Dividends are a measure of a company’s financial stability. That’s why a dividend cut or suspension 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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