Los hay que ya empiezan a replantearse lo de vender después de un recorte de dividendo.
Dividend Growth Investor
I am also monitoring the situation with the economy. I am not sure if you have read this, but Cheesecake Factory (CAKE) had sent a letter to its landlords, indicating that it won’t be paying rent in April. That is despite the fact that the company has liquidity, it paid a dividend after sending the letter, and it has cut costs by furloughing employees. A lot of tenants will be working with landlords on rent deferrals or abatement. Some retailers and restaurants that are closed are having a hard time paying their expenses, such as rent.
Someone’s expenses are another entity’s income. As a result, some REITs will see themselves with a shock to their funds from operations. REITs and tenants would have to work together to withstand that difficult time. There may be some dividend cuts as a result. I am pretty certain the Simon Property Group’s (SPG) dividend is not very safe. However, the risk is increasing even for Realty Income (O), National Retail Properties (NNN) and W.P. Carey (WPC). Usually, I sell a stock after a dividend cut.
The shocks to the economic system from widespread shutdowns that are initiated by Federal, State and Local governments are making me rethink this policy for the time being. After all, it is not a restaurant’s or REIT’s fault that the government decided to shut down everything that is non-essential. Mall operators had issues even before this recession however, but the decline is exacerbating these issues at a difficult time. There are first and second and third order effects of these shutdowns, which will work their way through the system. It is also possible that I am rationalizing my decision to abandon my risk strategy of selling after a dividend cut. The reason for selling after a dividend cut is to acknowledge that my initial thesis of expecting higher dividend payments from the company was wrong. The other reason is to protect my capital, in case I make mistakes. Companies do not cut dividends, unless things are really bad. If I don’t sell, and things get worse, I may end up losing my entire amount invested. In my experience, if you sold after a dividend cut in 2008 for example, you would have avoided a large portion of losses on Citigroup for example. Selling after its January 2008 dividend cut would have prevented you from losing over 75% of your account equity in the position. That dividend cut occurred after a 60% decline in the stock price too!
The risk with selling after a dividend cut is that by the time a company cuts dividends, things are already starting to bottom. Also, if a company cuts expenses to the bone and cash coming out is also reduced drastically after a dividend cut or elimination, this increases the entity’s chances of survival during the difficult times. Sometimes, even a well-managed organization can run into troubles outside their locus of control, so they have to adapt and react in the best way possible. For example, in February and March 2009 we had U.S. Bank and Wells Fargo cut dividends. However, if you sold, you ended up selling at the lows, and missed out on a massive rebound of 4 - 5 times the price off the lows.
As you can see selling after a dividend cut is a crapshoot. I guess we will find out soon what I end up doing under fire