Precious Lessons From Dividend Cuts Of The Recent Past

Numerous SA readers have adopted the dividend-growth-investing [DGI] strategy in order to reach their retirement goal. As this strategy relies on a growing income stream from dividends, dividend cuts are especially harmful to the strategy. Therefore, DGI investors should try to learn some precious lessons from a few prominent dividend cuts of the recent past. In this article, I will analyze these lessons.
The historical record matters unless…
Some of the most reliable dividends are those of the Dividend Aristocrats, i.e., companies that have raised their dividends for at least 25 consecutive years. The consistent dividend growth confirms the strong business model of these companies and their reliable growth trajectory, regardless of the phase of the economic cycle. Therefore, a dividend cut by a Dividend Aristocrat is a rare phenomenon. Examples of such stalwarts are Coca-Cola (KO), McDonald’s (MCD), Procter & Gamble (PG) and Wal-Mart (WMT).
It is also worth noting that these companies will do their best to defend their exceptional streaks of dividend growth even under the most adverse business conditions. For instance, after two decades of relentless growth, Wal-Mart has stopped growing its earnings in the last five years. Nevertheless, its management has not cut the dividend. Instead it has chosen to marginally raise it, by only $0.01 per quarter. In this way, the retail stalwart has maintained its 42-year streak of dividend hikes. Its shareholders may... Read more