×
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S&P 500   3,911.74 (+3.06%)
DOW   31,500.68 (+2.68%)
QQQ   294.61 (+3.43%)
AAPL   141.66 (+2.45%)
MSFT   267.70 (+3.41%)
META   170.16 (+7.19%)
GOOGL   2,359.50 (+5.11%)
AMZN   116.46 (+3.58%)
TSLA   737.12 (+4.52%)
NVDA   171.26 (+5.55%)
NIO   24.08 (+4.47%)
BABA   117.62 (+4.91%)
AMD   87.08 (+5.64%)
MU   58.44 (+3.95%)
CGC   3.77 (+4.72%)
T   20.99 (+1.84%)
GE   67.08 (+4.70%)
F   12.01 (+3.89%)
DIS   97.78 (+3.69%)
AMC   12.47 (+3.49%)
PFE   51.59 (+2.99%)
PYPL   77.68 (+5.24%)
NFLX   190.85 (+5.03%)
S&P 500   3,911.74 (+3.06%)
DOW   31,500.68 (+2.68%)
QQQ   294.61 (+3.43%)
AAPL   141.66 (+2.45%)
MSFT   267.70 (+3.41%)
META   170.16 (+7.19%)
GOOGL   2,359.50 (+5.11%)
AMZN   116.46 (+3.58%)
TSLA   737.12 (+4.52%)
NVDA   171.26 (+5.55%)
NIO   24.08 (+4.47%)
BABA   117.62 (+4.91%)
AMD   87.08 (+5.64%)
MU   58.44 (+3.95%)
CGC   3.77 (+4.72%)
T   20.99 (+1.84%)
GE   67.08 (+4.70%)
F   12.01 (+3.89%)
DIS   97.78 (+3.69%)
AMC   12.47 (+3.49%)
PFE   51.59 (+2.99%)
PYPL   77.68 (+5.24%)
NFLX   190.85 (+5.03%)
S&P 500   3,911.74 (+3.06%)
DOW   31,500.68 (+2.68%)
QQQ   294.61 (+3.43%)
AAPL   141.66 (+2.45%)
MSFT   267.70 (+3.41%)
META   170.16 (+7.19%)
GOOGL   2,359.50 (+5.11%)
AMZN   116.46 (+3.58%)
TSLA   737.12 (+4.52%)
NVDA   171.26 (+5.55%)
NIO   24.08 (+4.47%)
BABA   117.62 (+4.91%)
AMD   87.08 (+5.64%)
MU   58.44 (+3.95%)
CGC   3.77 (+4.72%)
T   20.99 (+1.84%)
GE   67.08 (+4.70%)
F   12.01 (+3.89%)
DIS   97.78 (+3.69%)
AMC   12.47 (+3.49%)
PFE   51.59 (+2.99%)
PYPL   77.68 (+5.24%)
NFLX   190.85 (+5.03%)

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.

MarketRank evaluates a company based on community opinion, dividend strength, institutional and insider ownership, earnings and valuation, and analysts forecasts.
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Media sentiment refers to the percentage of positive news stories versus negative news stories a company has received in the past week.
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CompanyAnnouncement DateAmountPrevious AmountDecrease AmountYieldEx-DatePayable DateIndicator(s)
IBA
Industrias Bachoco
6/24/2022$0.488680$1.8966-74.23%2.1%7/11/20227/25/2022News Coverage
CYD
China Yuchai International
6/23/2022$0.40$1.70-76.47%4.16%7/5/20227/15/2022Upcoming Earnings
Analyst Report
News Coverage
Gap Up
LFC
China Life Insurance
6/23/2022$0.484680$0.4951-2.10%4.9%7/6/20229/1/2022News Coverage
BBDO
Banco Bradesco
6/22/2022$0.0030$0.003330-9.91%1.25%7/1/20228/10/2022News Coverage
BBD
Banco Bradesco
6/22/2022$0.0030$0.003670-18.26%1.06%7/1/20228/10/2022News Coverage
QYLG
Global X Nasdaq 100 Covered Call & Growth ETF
6/17/2022$0.1160$0.1220-4.92%5.93%6/21/20226/29/2022Ex-Dividend
Negative News
QYLD
Global X NASDAQ 100 Covered Call ETF
6/17/2022$0.1740$0.1780-2.25%12.05%6/21/20226/29/2022Ex-Dividend
Negative News
PRFZ
Invesco FTSE RAFI US 1500 Small-Mid ETF
6/17/2022$0.47$0.5260-10.65%1.25%6/21/20226/30/2022Ex-Dividend
Negative News
PID
Invesco International Dividend Achievers ETF
6/17/2022$0.1890$0.2070-8.70%4.44%6/21/20226/30/2022Ex-Dividend
Negative News
PGJ
Invesco Golden Dragon China ETF
6/17/2022$0.0760$0.0820-7.32%1.0%6/21/20226/30/2022Ex-Dividend
Negative News
Gap Up
PEZ
Invesco DWA Consumer Cyclicals Momentum ETF
6/17/2022$0.0110$0.0780-85.90%0.07%6/21/20226/30/2022Ex-Dividend
Negative News
PEY
Invesco High Yield Equity Dividend Achievers ETF
6/17/2022$0.0670$0.0680-1.47%4.04%6/21/20226/30/2022Ex-Dividend
Negative News
KBWR
Invesco KBW Regional Banking ETF
6/17/2022$0.35$0.3690-5.15%2.64%6/21/20226/30/2022Ex-Dividend
Negative News
KBWP
Invesco KBW Property & Casualty Insurance ETF
6/17/2022$0.5140$0.5370-4.28%2.64%6/21/20226/30/2022Ex-Dividend
Negative News
IHYF
Invesco High Yield Bond Factor ETF
6/17/2022$0.1040$0.1060-1.89%5.75%6/21/20226/30/2022Ex-Dividend
Negative News
BSMU
Invesco BulletShares 2030 Municipal Bond ETF
6/17/2022$0.0360$0.0380-5.26%2.02%6/21/20226/30/2022Ex-Dividend
Negative News
BSMS
Invesco BulletShares (R) 2028 Municipal Bond ETF
6/17/2022$0.0280$0.0290-3.45%1.46%6/21/20226/30/2022Ex-Dividend
Negative News
BSJS
Invesco BulletShares 2028 High Yield Corporate Bond ETF
6/17/2022$0.0950$0.1020-6.86%5.39%6/21/20226/30/2022Ex-Dividend
Negative News
High Trading Volume
BSCU
Invesco BulletShares 2030 Corporate Bond ETF
6/17/2022$0.0360$0.0370-2.70%2.64%6/21/20226/30/2022Ex-Dividend
Negative News
PRT
PermRock Royalty Trust
6/17/2022$0.10$0.101081-1.07%17.05%6/29/20227/15/2022News Coverage
FCPT
Four Corners Property Trust
6/17/2022$0.3325$0.3330-0.15%5.2%6/29/20227/15/2022Analyst Report
News Coverage
GROW
U.S. Global Investors
6/16/2022$0.0070$0.0075-6.67%1.91%7/8/20227/25/2022Dividend Increase
News Coverage
Gap Up
CSML
IQ Chaikin U.S. Small Cap ETF
6/16/2022$0.0720$0.1020-29.41%0.98%6/17/20226/24/2022Negative News
TEO
Telecom Argentina
6/16/2022$0.313940$0.4025-22.00%26.0%6/24/20227/5/2022Gap Down
MXF
The Mexico Fund
6/15/2022$0.0667$0.18-62.94%2.9%7/19/20227/28/2022
TTE
TotalEnergies
6/15/2022$0.509854$0.7843-34.99%3.66%6/16/20227/14/2022Gap Up
SNLN
Highland/iBoxx Senior Loan ETF
6/14/2022$0.0460$0.0520-11.54%3.7%6/15/20226/30/2022
IVT
InvenTrust Properties
6/14/2022$0.2050$0.2052-0.10%3.15%6/29/20227/15/2022High Trading Volume
AEF
Aberdeen Emerging Markets Equity Income Fund
6/13/2022$0.11$0.14-21.43%9.9%6/21/20226/30/2022Ex-Dividend
CSF
VictoryShares US Discovery Enhanced Volatility Wtd ETF
6/10/2022$0.0010$0.0050-80.00%0.02%6/10/20226/14/2022
CMCT
Creative Media & Community Trust Co.
6/10/2022$0.0850$42.00-99.80%4.8%6/16/20227/5/2022Analyst Report
Positive News
CIZ
VictoryShares Developed Enhanced Volatility Wtd ETF
6/9/2022$0.0470$0.1010-53.47%1.88%6/10/20226/14/2022
CFO
VictoryShares US 500 Enhanced Volatility Wtd ETF
6/9/2022$0.0140$0.0230-39.13%0.25%6/10/20226/14/2022
XT
iShares Exponential Technologies ETF
6/8/2022$0.22$0.28-21.43%6/9/20226/15/2022
SUSL
iShares ESG MSCI USA Leaders ETF
6/8/2022$0.2190$0.2480-11.69%1.25%6/9/20226/15/2022
SOXX
iShares Semiconductor ETF
6/8/2022$0.6280$0.8750-28.23%0.62%6/9/20226/15/2022Negative News
SDG
iShares MSCI Global Impact ETF
6/8/2022$0.7410$1.0540-29.70%6/9/20226/15/2022
SCZ
iShares MSCI EAFE Small-Cap ETF
6/8/2022$1.1250$1.39-19.06%6/9/20226/15/2022
RING
iShares MSCI Global Gold Miners ETF
6/8/2022$0.2290$0.3310-30.82%6/9/20226/15/2022
LDEM
iShares ESG MSCI EM Leaders ETF
6/8/2022$0.4080$0.7970-48.81%6/9/20226/15/2022
IXUS
iShares Core MSCI Total International Stock ETF
6/8/2022$0.9480$1.2730-25.53%6/9/20226/15/2022
IUSV
iShares Core S&P U.S. Value ETF
6/8/2022$0.3050$0.37-17.57%1.72%6/9/20226/15/2022Positive News
IUSG
iShares Core S&P U.S. Growth ETF
6/8/2022$0.1690$0.20-15.50%0.76%6/9/20226/15/2022
IMCV
iShares Morningstar Mid-Cap Value ETF
6/8/2022$0.2750$0.33-16.67%1.71%6/9/20226/15/2022
IJT
iShares S&P Small-Cap 600 Growth ETF
6/8/2022$0.2150$0.2210-2.71%0.76%6/9/20226/15/2022
IBB
iShares Biotechnology ETF
6/8/2022$0.0310$0.1180-73.73%0.11%6/9/20226/15/2022News Coverage
EWZS
iShares MSCI Brazil Small-Cap ETF
6/8/2022$0.2180$0.3410-36.07%6/9/20226/15/2022
ESGU
iShares ESG Aware MSCI USA ETF
6/8/2022$0.2760$0.3220-14.29%1.24%6/9/20226/15/2022
ESGE
iShares ESG Aware MSCI EM ETF
6/8/2022$0.2760$0.8310-66.79%6/9/20226/15/2022
ENZL
iShares MSCI New Zealand ETF
6/8/2022$0.5460$0.8880-38.51%6/9/20226/15/2022
EMXF
iShares ESG Advanced MSCI EM ETF
6/8/2022$0.2120$0.6230-65.97%6/9/20226/15/2022
EMXC
iShares MSCI Emerging Markets ex China ETF
6/8/2022$0.5070$0.7830-35.25%6/9/20226/15/2022
DVY
iShares Select Dividend ETF
6/8/2022$0.8670$0.8880-2.36%2.76%6/9/20226/15/2022
CIB
Bancolombia
6/8/2022$0.8250$0.828020-0.36%8.04%6/28/20227/11/2022News Coverage
ACWI
iShares MSCI ACWI ETF
6/8/2022$0.8470$1.0170-16.72%6/9/20226/15/2022
FT
Franklin Universal Trust
6/8/2022$0.0425$0.0430-1.16%6.4%6/16/20226/30/2022Positive News
UBP
Urstadt Biddle Properties
6/6/2022$0.2140$0.2145-0.23%5.2%6/30/20227/15/2022Positive News
UBA
Urstadt Biddle Properties
6/6/2022$0.2370$0.2375-0.21%5.38%6/30/20227/15/2022
ENIC
Enel Chile
6/6/2022$0.0110$0.218660-94.97%5/19/20225/20/2022News Coverage
DDF
Delaware Investments Dividend and Income Fund
6/6/2022$0.0635$0.0654-2.91%8.4%6/16/20226/24/2022
QFIN
360 DigiTech
6/3/2022$0.22$0.26-15.38%4.9%6/16/20227/27/2022Gap Up
MFV
MFS Special Value Trust
6/3/2022$0.039920$0.041840-4.59%10.0%6/14/20226/30/2022
MFM
MFS Municipal Income Trust
6/3/2022$0.0210$0.0220-4.55%4.8%6/14/20226/30/2022
CIF
MFS Intermediate High Income Fund
6/3/2022$0.015590$0.016510-5.57%10.1%6/14/20226/30/2022
CIF
MFS Intermediate High Income Fund
6/3/2022$0.015590$0.016510-5.57%10.1%6/14/20226/30/2022
MGF
MFS Government Markets Income Trust
6/3/2022$0.023090$0.023570-2.04%8.6%6/14/20226/30/2022
MYN
BlackRock MuniYield New York Quality Fund
6/3/2022$0.0405$0.0515-21.36%4.4%6/14/20227/1/2022
MYN
BlackRock MuniYield New York Quality Fund
6/3/2022$0.0405$0.0515-21.36%4.4%6/14/20227/1/2022
MHN
BlackRock MuniHoldings New York Quality Fund
6/3/2022$0.0445$0.0545-18.35%4.6%6/14/20227/1/2022Positive News
MQY
BlackRock MuniYield Quality Fund
6/3/2022$0.0560$0.0630-11.11%5.1%6/14/20227/1/2022
MVT
BlackRock MuniVest Fund II
6/3/2022$0.05$0.0585-14.53%4.7%6/14/20227/1/2022
BKT
BlackRock Income Trust
6/3/2022$0.0294$0.0344-14.53%7.6%6/14/20226/30/2022
BKT
BlackRock Income Trust
6/3/2022$0.0294$0.0344-14.53%7.6%6/14/20226/30/2022
DOOO
BRP
6/2/2022$0.1240$0.1260-1.59%0.69%6/29/20227/14/2022
RVT
Royce Value Trust
6/1/2022$0.35$0.36-2.78%8.81%6/10/20226/24/2022
MMT
MFS Multimarket Income Trust
6/1/2022$0.0350$0.036310-3.61%8.66%6/14/20226/30/2022
MIN
MFS Intermediate Income Trust
6/1/2022$0.0230$0.023330-1.41%9.2%6/14/20226/30/2022
JHS
John Hancock Income Securities Trust
6/1/2022$0.1680$0.1780-5.62%5.45%6/10/20226/30/2022
JHI
John Hancock Investors Trust
6/1/2022$0.32$0.3430-6.71%8.69%6/10/20226/30/2022News Coverage
CXH
MFS Investment Grade Municipal Trust
6/1/2022$0.0280$0.0290-3.45%4.15%6/14/20226/30/2022
CXE
MFS High Income Municipal Trust
6/1/2022$0.0160$0.0175-8.57%4.55%6/14/20226/30/2022
VBNK
VersaBank
6/1/2022$0.0190$0.02-5.00%0.89%7/7/20227/31/2022Gap Up
MAA
Mid-America Apartment Communities
6/1/2022$1.0625$1.25-15.00%2.36%6/30/2022Analyst Report
CHT
Chunghwa Telecom
6/1/2022$1.545720$1.550990-0.34%5.7%6/29/20228/12/2022News Coverage
ORAN
Orange
6/1/2022$0.333264$0.544950-38.85%4.73%6/3/20226/24/2022Analyst Upgrade
WBND
Western Asset Total Return ETF
5/31/2022$0.0350$0.0650-46.15%1.93%6/1/20226/6/2022Positive News
MIXT
MiX Telematics
5/31/2022$0.0480$0.05-4.00%1.96%6/16/20226/30/2022Gap Down
IGIB
iShares 5-10 Year Investment Grade Corporate Bond ETF
5/31/2022$0.1170$0.1220-4.10%2.69%6/1/20226/7/2022
EMB
iShares J.P. Morgan USD Emerging Markets Bond ETF
5/31/2022$0.3350$0.3640-7.97%4.43%6/1/20226/7/2022
CFFN
Capitol Federal Financial
5/31/2022$0.20$0.40-50.00%6/9/20226/24/2022
BGRN
iShares USD Green Bond ETF
5/31/2022$0.1220$0.1640-25.61%3.02%6/1/20226/7/2022
CLWT
Euro Tech
5/31/2022$0.06$0.466667-87.14%6/10/20226/23/2022Analyst Report
Gap Down
TEF
Telefónica
5/28/2022$0.102972$0.4478-77.00%4.05%6/1/20226/27/2022
BMA
Banco Macro
5/26/2022$0.69$2.248960-69.32%4.54%6/3/20226/6/2022News Coverage
TD
Toronto-Dominion Bank
5/26/2022$0.6920$0.7020-1.42%3.71%7/7/20227/31/2022
M
Macy's
5/26/2022$0.1570$0.1575-0.32%2.74%6/14/20227/1/2022News Coverage
High Trading Volume
SBLK
Star Bulk Carriers
5/24/2022$1.65$2.00-17.50%20.7%6/2/20226/16/2022
NTES
NetEase
5/24/2022$0.3220$0.4050-20.49%1.32%6/7/20226/23/2022Gap Up
GRIN
Grindrod Shipping
5/24/2022$0.47$0.72-34.72%7.5%6/9/20226/20/2022News Coverage
Gap Up
FEMB
First Trust Emerging Markets Local Currency Bond ETF
5/23/2022$0.14$0.1470-4.76%5.96%5/24/20225/31/2022

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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