From 1980 – 2021 we had falling interest rates and falling inflation. That was good for many companies as they could borrow cheap debt.
It was also the time when many companies started to raise their dividend regularly. Among the best, grew certain companies that are called “dividend aristocrats” or even “dividend kings”. The former has been raising its payout for at least 25 years in a row, the latter even for 50 years.
But this is likely over! I even think that this decade can see the:
“Megatrend of this decade: Dividend cuts + an update to my most popular article so far” (see my free article here).
For me, many especially younger investors who only know low or zero interest rates, substantially underestimate this new situation.
I think there will be many dividend cuts. And it will not matter which title a company holds. These titles will become totally worthless!
Don’t be among those “investors” that only look to the past and extrapolate historical data into the future. We all know that a company must survive and generate enough free cash flow to be able to pay a dividend on a sustainable basis.
My prime example for how quickly things can get sour is the one of V.F. Corp (ISIN: US9182041080, Ticker: VFC; I wrote about it here).
To sum up, it was a highly praised stock because it paid and increased its dividend year after year. Then, finally, in December 2022, the management hiked the payout for the 50th time in a row – VFC became a dividend king. However, already long before, the balance sheet was pretty weak due to too much debt. So was free cash flow generation.
Anyway, it was only a matter of time until a cut would come. It took just two months.
VFC became a “dividend king”, only to cut the dividend two months later – by 41%!
If you had looked into the company’s finances, you would’ve been able to see big risks – at the minimum.
All the painful way down for the stock and its holders, the never-ending perseverance slogans came out nearly on a weekly basis, trying to motivate to buy the dip – first at a dividend yield below 5%, later even above 7%.
Do you know my article about 3M – a highly praised dividend king that has been raising its payout for 64 years in a row?
I am convinced it will be cut.
Management did a bad job. Yet, there are still many pundits that judge the safety of the dividend just by its past – not by the real facts and figures.
See my article: “The dice are cast – 3M will have to cut its dividend” (see here).
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