For dividend investors, a dividend cut is an investment failure. Not only can it destroy our retirement plan, but it also affects our conviction. Fortunately, there are ways to avoid most dividend cuts or minimize their impact on your portfolio. Here are the best 4 tricks!
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You’ll Learn
- The current environment is full of multiple uncertainties. As investors, we may feel we have no control over dividend cuts. However, there are noticeable signs before a dividend cut happens, the first being the market itself. So, the number one technique is to trust the market and look at the yield! Mike explains this further.
- In other words, if a stock shows a yield higher than its 10-year average, it’s a red flag that you need to investigate.
- Technique number two is to beware of an absence of dividend growth. How does it impact dividend safety?
- Mike doesn’t believe in dividend investing but strongly advocates dividend GROWTH investing. What does that really mean, and why is it so?
- Are there times when too much growth becomes a danger to dividend safety?
- The first two techniques bring us back to the dividend triangle. So, at number 3, Avoid the Weak Dividend Triangle. Let’s dig into this!
- Do you have concrete examples of companies with weak dividend triangles that cut their dividends shortly after you noticed them?
- The last technique is to avoid putting the narrative over the numbers. We’ve explained this a few times, but it remains a crucial point to avoid dividend cuts.
- We couldn’t do this episode without adding notes on the Payout Ratio. There’s a common belief that a good payout ratio is under 80%. Why is this misleading?
- This means a payout ratio over 100% can, sometimes, be sustainable and not be a sign of an upcoming dividend cut.
- We have made a quick checklist for Dividend Stocks Rock members who’d like to assess the dividend safety of their holdings. Let’s end the episode with these checkpoints as a summary.
Related Content
In this episode, we have discussed the payout ratio issue in more depth.
Most of the stocks we discussed in this episode show signs of upcoming dividend cuts or have already suspended them.
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This podcast episode has been provided by Dividend Stocks Rock.
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