I was reviewing some of the high-profile dividend cuts in the past five years–Pitney Bowes, Conoco Phillips, BHP Billiton, Viacom, Wells Fargo, General Electric, Dow Chemical, American Express, U.S. Bancorp–and I was trying to figure out if there were some elements regarding investor sentiment that could aid us in drafting some common rules relating to the experience.
Here is what I found:
In the nine months preceding a dividend cut, these stocks saw their earnings decline by an average of 62.3%.
And yet, in the nine months preceding a dividend cut, these stocks only saw their stock price decline by an average of 31.0%.
When the dividend cut came, these stocks experienced a maximum trough of an additional 38.5% decline on average (in other words, I measured the subsequent lowest price that occurred sometime within the year after the dividend cut and compared it to the price that existed on … Read the rest of this article!