Emotional
attachments can be brutal, and hope can be your true enemy. If a company has
experienced a serious setback and is losing market share, don’t let your
emotions get in the way. Cut your losses, dump your shares, and find another
place to invest your money.
·
If the company eliminates the dividend, get out
immediately.
The company is in crisis mode.
·
If
the company cuts the dividend, take a close look to get an idea of the
company’s growth prospects in light of this cut.
Selling
this stock is a judgment call. A dividend cut shows the company needs to
conserve cash, typically to manage
its debt. This move typically shows that
management hasn’t been on top of
finances and risk management. If the cut
comes because of broader economic
conditions, you have to determine
whether you believe this management
team can steer the company
through dangerous waters. If the cut
is because of the company’s internal
problems, sell immediately.
·
If
the company’s share price drops more than 10 percent but the company maintains
the dividend, do a little more investigation.
This situation is another
judgment call. First, look at the rest of the market. Is the price down because
of a sharp decline in the sector or broad market? Is this company part of the
sector causing all the trouble? For instance, if in early 2009 you held bank or
real estate stocks that hadn’t cut their dividends, you may have expected them
to soon follow their peers with a dividend cut. In that case, sell. If the
yield is way out of whack with the rest of the sector (off by, say, 4
percentage points), that may be another warning sign to get out. On the other
hand, if during a market downturn your stock
is part of a stronger, more defensive industry that continues to do
business and should rally with the
economy, hold on for the ride and consider buying more.
·
If
the share price drops and the company boosts the dividend payout, buy more
shares.
In my quest for learning value investing
I came acrros this interesting article and thought would like to share this
with the community
Comments
/ Improvements and points worth considering are welcome
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