It’s important to realize that consistent dividend payers are often held by shareholders in it for the steady stream of income. As a result when the market is getting crushed as we’ve seen over the last few months, many loyal shareholders will hold onto their stock, confident that while their shares may drop in value, they’ll still get their quarterly check. This provides a cushion to investors that would have bailed out about $10.00 ago.
Unless they cut it.
If there’s one thing to take into account when it comes to dividend payers, if you see decreasing dividend rates, expect fireworks. These signal a lot of red flags for investors. It means that the firm is no longer bringing in enough revenue to support their dividend rate, and that could mean serious growth problems in the future. For Bank of America the situation is unique, as this credit crunch and crisis is unprecedented. That does explain the 20% drop today, however, as investors who would have stayed on board for the dividends are now jumping ship.
WIll you?
My name's Frank and I'm a life long seeker of passive income and dividends. I work in Financial Services and invite you to join me in my search for the holy grail of finance: passive income. My methods tend to be unorthodox but effective. Whether it's through investing or other means, I believe in creating many sources of income to give me the flexibility to live the life I want, when I want it.
