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Should You Cut a Stock That Cuts Its Dividend?

While more than 60% of the companies that make up the S&P 500® Index increased their quarterly dividends in 2017,1 a handful actually reduced their payouts. Should such cuts be viewed as a sign of underlying trouble?

Not necessarily, says Steve Greiner, senior vice president of Schwab Equity Ratings® at the Schwab Center for Financial Research. “A reduced dividend could be a red flag,” he says, “but is rarely reason enough to sell.” In fact, some companies hoard cash in advance of a merger, to put cash back on their balance sheets or for a host of other productive reasons.

Investors should instead view a dividend cut as an opportunity to reevaluate the investment. “Review its fundamentals, check its Schwab Equity Rating (see “What you can do next,” below) and avail yourself of recent commentaries and company news,” Steve says. “If your reasons for owning the stock are still valid, by all means keep it. But if they’re not, it might be time to make a change.”

1Daren Fonda, “Don’t Get Burned When a Stock Cuts Its Dividend,” kiplinger.com, 02/2018.

What You Can Do Next

  • Read more insights on stocks.
  • Schwab clients: To view a stock’s Schwab Equity Rating, log in and enter its ticker symbol in the search box.
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Important Disclosures

Schwab Equity Ratings and general buy/hold/sell guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment or other objectives or needs of, and may not be suitable for, any particular investor or client. Investors and clients should consider Schwab Equity Ratings as only a single factor in making their investment decisions while taking into account the current market environment.

Investing involves risk, including loss of principal.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers are obtained from what are considered reliable sources. However, their accuracy, completeness and reliability cannot be guaranteed.

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The S&P 500 Index is a market-capitalization-weighted index comprising 500 widely traded stocks chosen for market size, liquidity and industry-group
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