Newsletter by Tim Plaehn
My rating – so far, pretty good.
(Note: this is a newsletter I subscribe to, but this comes from the “free” side of the web site.)
From newsletter, 2019-12-30
“Sell These Three Dividend Stocks.”
CBL & Associates (CBL)
The Macerich Company (MAC)
PREIT (PEI)
OK. It doesn’t take rocket science to see that these are dogs that should have been dumped a while ago, I would think.
But his explanation for why they are dogs is good.
Dividend-paying stocks with very high yields are priced that way to price in the probability of a dividend cut. The higher the yield, the greater the potential for a dividend reduction, at least in the opinion of the investing public. The concept to grasp about high-yield stocks is that whether the dividend gets cut on a particular stock is a binary outcome. Either it won’t get reduced, which means investors earn a very attractive yield and cash flow from the stock or the dividend does get cut.
If that’s the case, even though the market has “priced in” a dividend cut with the higher yield when an actual dividend reduction is announced, the share price often drops by a significant amount. It is even more painful when the dividend on a high yield stock gets cut.
OK. They should have been gone long ago but at least the explanation is helpful.