When can we sell stocks

A Dividend Cut

Dividends are sacred to shareholders and companies alike, so when a firm cuts its dividend, take note.

“It’s certainly an attention-getter and a red flag,” says Drew Lanphear, a Milwaukee CFP. “But it’s important to dig deeper and find out what’s behind it.” Many firms pared or suspended dividends in early 2020 to conserve cash during the pandemic lockdown. But as the economy recovers, most of those payouts could be restored.

Other times, a dividend cut can be a hint of bigger problems, such as too much debt or declining earnings, and you’re better off getting out.

Shares in General Electric (GE) had fallen more than 40%, to $18, in 2017 when the firm cut its quarterly payout 50% in December of that year. Smart investors ditched their shares then – revenues had been relatively flat for years, and earnings were lumpy. Shareholders who hung on suffered more pain in 2018, when GE’s dividend fell to one penny and shares slipped below $10.

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