Comments on the moneygardener: is any dividend safe?

You have to look at a dividend cut contextually. W...

2009-02-26T13:20:02.265-05:00

You have to look at a dividend cut contextually. Why is it doing it? In RUS' case, it was partially for a sharp decline in business and partially because they would be off-side on loan covenants. RUS also had a dividend payout ratio in the 90% (last time I checked). So, to use the analogy, a 40% decline in pesonal income hurts more if you have very little discretionary income than if you had lots. It is still bad but it comes down to your margin of error shown through the payout ratio.

If a companies' earnings decline, the question becomes do we put the money in our shareholder's pockets or back in the business? If you are issuing shares to prop up balance sheets, is it exactly fair that most of that money would be redirected to dividend payments (the hard question being asked of BMO right now)?

There are some industries where a dividend cut has to be temporary simply because its peers continue to pay dividends (TRP is a good example of a company that got punished for slashing its dividend in the 1990's while its competitors maintined theirs).

In the long run, the question is whether the dividend is temporary to keep the core of the business intact or is the dividend cut a harbringer of the total collapse of the business.

I feel I'm in the same boat with respect to whethe...

2009-02-25T17:48:11.885-05:00

I feel I'm in the same boat with respect to whether a company plans to keep, cut or eliminate its dividend. I suppose what I was trying to get at is whether companies trying not to cut their dividends will hurt their businesses.

Maybe all the pressure is just pseudo-reporting, but I'm sure there would be alot of unhappy investors if the Canadian banks started slashing dividends. I'm saving my re-analysis of companies until earnings projections are a little more reliable - but until then, I'll keep an eye out on dividend payout policies in case some Co.'s who should cut are not doing so.

Great points CSC. I like the analogy to personal ...

2009-02-25T16:14:10.672-05:00

Great points CSC. I like the analogy to personal income.

Let's not forget that if you are a long-term inves...

2009-02-25T13:30:40.140-05:00

Let's not forget that if you are a long-term investor, one of your main concerns should be the long-term viability of your companies. Companies that have the courage to see the world without rose colored glasses and take actions to ensure that they will continue to thrive are definitively worth keeping in your portfolio.

We keep hearing that the current economic slowdown is the worst since the great depression. As investors, we also need to remove our own rose colored glasses.

Just listen to the Russel Metals conference call or read their press releases. Demand has fallen 40% in a very short period. Things are not fine. How would we react if 40% of personal income was to disappear in the next few months. Even though I live way below my means, I am sure that I would start cutting expenses left and right.

Great companies will adapt and survive so they can fight another day. I am not a RUS shareholder but after looking at the situation, I am impressed with management's courageous reaction.

CSC

Sampson, Anything financial has a risk of a cut. I...

2009-02-24T14:30:58.310-05:00

Sampson, Anything financial has a risk of a cut. It really depends on the business on whether they'd risk the cash in a break-even situation.

I wouldn't change anything in response to a cut just like I wouldn't change anything in response to a raise. I look at the business as a whole and why I hold the name.

Hey MG - any hints on which of your own portfolio ...

2009-02-23T21:47:17.263-05:00

Hey MG - any hints on which of your own portfolio holdings you think might cut vs. keep their dividends?

Having a quick gander at your portfolio, it looks like maybe 1/3 to 1/2 of the Co.'s are in the red and certainly their dividends are at the most risk.

I wonder though, if a company is still profitable or break-even, would they risk the cash in this uncertain environment?

Do you plan on making changes to your portfolio in response to dividend cuts?