If you are investing in dividend stocks, the last thing you want to see is a company cutting its payout. But sometimes cuts have to be made, and during this period of corporate cost-cutting we may see many dividend cuts.
What makes this a fascinating example of a company cutting its dividend is that V.F. is included in the S&P 500 Dividend Aristocrats Index SP50DIV, -0.08%. This index is made up of all the companies in the benchmark S&P 500 SPX, -0.66% that have raised their regular dividends for at least 25 consecutive years.
So even though NOBL has a higher dividend yield than SPY does, it is really a long-term growth strategy. Here are total returns for both for the past five years, with dividends reinvested: But many investors still wish to hold their own stocks with high yields to produce regular income. For these investors, the risk of dividend cuts is an important consideration. A drastic dividend cut might mean you need to replace lost income. It can also crush a stock price, making it difficult to decide whether to get out immediately or wait for the share price of a dividend cutter to recover.One way is to look at projected free cash flows.
In the case of V.F. Corp, the company’s annual dividend payout before the cut on Feb. 7 was $2.04 a share, which would have made for a yield of 7.15%, based on the closing price of $28.52 that day. Analysts polled by FactSet expect the company’s FCF per share for calendar 2023 to total $1.98, for an estimate FCF yield of 6.94%. So the company wasn’t expected to be able to cover the dividend yield with free cash flow this year.
For a broad list, we began with the S&P Composite 1500 Index SPX, -0.66%, which is made up of the S&P 500, the S&P 400 Mid Cap Index MID, -0.76% and the S&P Small Cap 600 Index SML, -0.99%. Among the S&P 1500, there are 84 stocks with dividend yields of at least 5.00%.
Is it safe?
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Umm… $intc cut its dividend from $2.84 to $0.50
What are dividend stocks, and why might they be less risky?