In honor of Halloween I wanted to present some scary trends that dividend growth investors do not want to see with their companies.
So here I present to the dividend growth investor a quick list that will be scarier than any horror film you watch this Halloween! Ooooooohhhh!
Try not to have nightmares tonight while you are sleeping!
- Dividend Cut – Possibly the scariest thing a dividend growth investor could experience is a dividend cut! We are looking to put our money in companies that will continue to grow their dividends higher, not reduce them lower. If one of your companies gives you a fright with a dividend cut, review your options and consider cutting ties with that company. There are plenty of great companies that continue to grow dividends. Possibly your money is best invested elsewhere.
- Earnings Trend Decreasing – Just as frightening as a dividend cut is when companies earnings decline. This leaves the investor in state of purgatory in which he is unsure how to react. Should the investor sell the company and look for better prospects? Should the investor hold steady and hope for a turnaround? My rule of thumb is to hold steady. Every company is going to have down years. It is when these down years become the trend when investors need to reconsider why they own the company.
- Revenues Decreasing - Similar to a decline in earnings, decreasing revenues can also be horrifying for investors. Decreasing revenues may be a signal for future decreasing earnings and ultimately the dreaded dividend cut. Similar to dropping earnings, investors should evaluate the reason for declining revenues/sales and most likely determine if this is the new trend before seeking refuge with other opportunities.
- Payout Ratio Growing Too High - A high dividend payout ratio can be chilling. If a company is already paying out most of its earnings to shareholders, how can they expect to grow that dividend rate in the future unless they continue to grow earnings. Too high of a payout ratio could signal slower dividend growth or even a bloodcurdling dividend cut in the future.
- Outstanding Debt Levels Growing – When debt levels reach hair raising levels, investors may get nervous that the company is becoming over leveraged. Wise investors must monitor the amount of debt taken on by the companies they own and make sure it does not rise to a chillingly high level. If companies take on too much debt, it could signal trouble for the dividend in the future.
- Poor Management Decisions – Sometimes management can make some eerie or even spine chilling decisions that leave investors scratching their heads. Make sure your management is not making any alarming decisions that could cause troubles ahead. The last thing an investor wants to see is a decision made by management that could have a dragging negative effect on the companies operating performance going forward.
I hope everyone has a safe and enjoyable Halloween! Try not to be kept awake too long by all these scary thoughts of dividend growth investing nightmares!
What’s your biggest dividend growth investing nightmare? Share your scares in the comments!
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