Yield Sprouting From 'Dividend Stumps'

Dividend cuts have surged in the last fiscal year, but many firms cutting slashing their payments have seen their shares fall by a greater amount than their dividend cut, meaning the "dividend stump" - what remains of the dividend after its cut - means that their forward dividend yield is actually higher than the pre-cut level.
Over 130 large cap firms have cut their dividends for fiscal 2015, most since 2012. Over a third of those firms now trade with a more attractive yield, despite cutting payments. French utility EDF is the most attractive stump with a 12% forecasted forward yield, albeit at high risk. The lackluster dividend environment has opened up the door for canny yield investors to take advantage of the fact that many of the companies cutting dividends have cut payments by a smaller margin than the fall in their share price. While dividends cuts among the ~1,500 global names which make up the Markit large cap dividend universe are running at a multiyear high, over a third of the 130+ companies in that universe that trimmed their dividend payments in 2015 fiscal year have seen their shares fall by a greater margin.

This means that the trailing dividend yield offered by these shares has increased over when both sides of the yield equation are factored in.
Yield hungry investors looking to take advantage of these attractive looking stumps need to beware however, as dividend cuts often precede further bad news for future payments. This is forecasted... Read more