Other epic dividend cutbacks include General Motors‘ dividend suspension in 2008 and Citigroup‘s suspension in 2009.
4. Share prices are reactive to dividend policy
Investors don’t like dividend cutbacks. If a company makes a dividend announcement that investors find disappointing, the share price will reflect the negative sentiment. When GE slashed its dividend in 2018, the share price fell 34% from about $78 to $51.54 in six weeks. As a result, shareholders had to absorb two negative consequences — a loss of income and a loss of value.
Reliable, but no guarantees
Dividend stocks may not be a great fit if you have a long investment timeline and a good appetite for risk. The tax implications of dividend stocks may also give you pause. While most dividends are taxed at the lower capital gains rate, any taxability compares unfavorably to unrealized gains on your buy-and-hold stocks — which aren’t taxed at all.
Finally, you may not like the core value proposition of dividend stocks. Dividend-payers promise reliability and resilience in exchange for modest growth, but no stock can guarantee the dividend or the modest growth will continue indefinitely. And when a dividend stock falters, the consequences to shareholders can be severe.
Since you face a risk of loss with any equity investment, you might prefer a little more risk in exchange for higher growth potential. If you have the nerves and the time to ride out some volatility, growth-oriented stocks have a brighter future than many dividend payers.