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How to Not Get Stung by a Dividend Cut

by Stuart Chaussee

If you're a conservative stock dividend investor, the ultimate low blow is when your beloved company cuts its dividend. It's a cardinal sin, as far as I'm concerned: It shows something is seriously wrong with the company, and it's being acknowledged by management. Still, as ugly as it is, a dividend cut may also present a great opportunity for you. A company often cuts its dividend at the end of a long string of bad news. The stock has probably already declined significantly leading up to the news that the dividend is being cut, and the actual news can produce a washout. In other words, the dividend's cut and all the old holdouts who hadn't sold the stock in the hopes that there would be a turnaround finally give up and dump the stock. This causes enormous volume on the day of the news and a blowout...

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