Dividend Cuts Prompt Investors to Reexamine Stock

For this week’s Sentiment Survey special question, we asked AAII members how the decision by some companies to cut or suspend their dividends is impacting their investment decisions. Slightly more than one out of three (34%) say that recent dividend cuts have led them to conduct additional analysis. Many in this group cite the importance of investigating what motivated the company to cut its dividend and where the company stands in terms of balance sheet strength. This group compares to 29% of respondents who state that dividend changes are resulting in earlier-than-expected portfolio adjustments to ensure a steady stream of dividend income. About 17% of respondents state that dividend cuts are impacting how much they are investing overall, with a majority in this group saying that they are selling holdings that are making such changes. Finally, 20% of respondents state that recent dividend changes are having no impact on their investment decision thus far.

Here is a sampling of the responses:

• “A lot! Income investing has done extremely well for me over the past 25 years, and I’m a believer that it’s the true stealth wealth builder. I will make whatever changes to my portfolio are necessary to keep those quarterly checks rolling in.”
• “First of all, why did they cut or suspend the dividend? Was this an explainable cut that was temporary or long-lasting? If this were a long-term decision, I would be likely to sell, otherwise, I would stay with the stock.”
• “Makes sense to preserve capital. I don’t think this short-term policy is unwarranted and it will not affect my investment decisions.”
• “These are tough times and dividend cuts are understandable. If it’s a good company, the dividends will come back, and I plan to hold them even if they cut them now. The last dividend company I cut from my portfolio when they announced a dividend cut was Boeing. In my view, they had some fundamental problems that they will not overcome in a while.”

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