Even though I completely understand why investors find dividend cuts unpleasant, I hold the opinion that it is incredibly self-destructive to sell a profitable company after a dividend cut because it is almost assured that the price of the stock has fallen and you would be engaging in the practice of selling low. My opinion on this is intensified when it comes to commodity investing. Outside of, say, Exxon and Chevron, dividend cuts in the sector are fair game. You can grow production of oil and oil equivalents all you want, but if the price of the commodity falls 40%, 50%, 60%, it is unlikely that the company will generate the cash flow to keep the dividend payment stable.
What do many novice investors do in response to a dividend cut in the oil sector? They sell. I think this is a decision that will cause permanent financial loss (as … Read the rest of this article!