What’s the worst thing that can happen to dividend stocks?
Is it the CEO leaving for “personal reasons”? No. Is it two bad quarters in a row? No. Is it some kind of crisis that requires it to hire a top-notch crisis PR firm? No.
The worst thing that can happen to dividend stocks is a reduction in its regular payout.
Few things will crater a dividend stock more than announcing it is reducing the amount of money it returns to shareholders. That’s because people have likely chosen the dividend stock as an investment because of the dividend (or at least, that’s one of the top reasons).
Suspending or reducing a dividend makes it easy to bail. The reason for the cut is often that cash flow is waning and needs to be deployed elsewhere, and that signals that the company’s story has changed. That’s reason enough to reconsider the investments. However, investors — especially retired investors — view a dividend yield cut as a betrayal. It’s psychological more than anything having to do with the actual business.
Fortunately, there are a number of dividend stocks you can invest in with little concern of a dividend cut, because these companies have been in the income game for the long haul. Specifically, these Dependable Dividend Stocks have all been paying out dividends for at least 50 years.