10-03-2016, 03:44 PM
I don't subscribe to the theory that a DG investor should sell any holding that cuts its dividend. A dividend cut, whether small or large, is never good news, but whether to hold the stock is always going to be a case-by-case determination for me. Reducing or suspending the dividend could be a harbinger of doom, or it might just be management's very prudent reaction to temporarily difficult business conditions.
As much as I love the deeply built-in expectation of dividends that rise every year, I've always been a little skeptical of the logic underneath it. From a business management perspective, it seems much more rational to say "we're going to return X percent of profits to shareholders as dividends." Yes, shareholders might not like the volatility of dividends that fluctuate with profits, but management would be free to run the business for the long term without taking on unnecessary debt to avoid the ire of shareholders.
As much as I love the deeply built-in expectation of dividends that rise every year, I've always been a little skeptical of the logic underneath it. From a business management perspective, it seems much more rational to say "we're going to return X percent of profits to shareholders as dividends." Yes, shareholders might not like the volatility of dividends that fluctuate with profits, but management would be free to run the business for the long term without taking on unnecessary debt to avoid the ire of shareholders.