The Dividend Cut In Disguise

Things are not always what they seem.- The Internet
Today, I want to discuss every dividend investor's worst nightmare: a dividend cut. In most cases, dividend cuts are catastrophic. When you think about it, a company would likely save its shareholders from the pain of seeing their income being slashed. When management comes to the point where it grabs back the money it was supposed to give you, that is because it has no other options left. A dividend cut is a confession of mismanagement, a confession that the company failed its shareholders. But did you know that not all dividend cuts are obvious? Some are done in plain sight, while some dividend cuts are done in disguise...

(Source: YCharts)
Dividend cuts are obvious When management announces a reduction of the dividend, the news spreads faster than a contest to win two tickets for the NFL Super Bowl. Media will use powerful words such as "axed", "slashed" or even "killed" (this reminds me of my time in El Salvador and Honduras!?!). It is then quite easy for investors to know what is going on and take action. According to my investing rules, a dividend cut is a stock to sell... now.
Dividend cuts in disguise While the financial press does an amazing job at reporting dividend decreases, it does an awful job at tracking down hundreds of companies fooling income-seeking investors. Those companies cut their dividend in your face and nobody is saying anything. Even worse, most... Read more