I was re reading the DGI blog entry on GE and the author's
experience with trading out of the stock in 2009 as the
the financial crisis deepened .. Typically, by the time
GE capitulated and announced that they were cutting their
dividend ( the author's signal to sell out ) the stock had
just made it's low for the move .. There was one comment
that made several cogent points worth sharing ..
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Granted, we all make mistakes in trading...believe me, I've made my share. However, one of the cardinal rules of investing that I've seen work more than any other, is to buy the rumor and sell the news. On the downside, just the opposite. When companies, like GE & BP, regarding dividends in both cases, throw in the towel, after a long and murderous decline, the gut says one thing....to sell, when the the mind must make the hard decision to go against the crowd and popular thinking, despite the violation of some trading rules, that might be in need of tweaking.
I think, perhaps, that those former dividend aristocrats that cut the dividend like GE might be the best dividend growers in the upcoming years as they try to restore faith. As a former employee of one bank that had to cut the dividend, and on speaking terms with it's CEO, I know that it is his intent to restore the dividend as quickly as they can.
The idea to rid oneself of the "losers" is correct, but not at the lows. Elimination of dividends is way too late of a signal to be making those kind of decisions. I sold my BP within days of the oil fire, it just did not make sense to hold it. I sold half of my GE position at 30 & change, when it broke support at that level and the market acting like crap. More was let go in the lows 20's, holding some with long term faith in the company. I bought much it back the two days after the cut. Only wish I had done the same with BP, but I feared the government's overreach too much to do that.
Dividends are the last thing that a company wishes to cut, and as we have seen, there is much talk of not cutting the dividend before they cut the dividend. It is a lagging indicator, worse than earnings, cash flow or any other sign of distress. Just think about it, when a company mentions that they have no plans to cut the dividend, that means that something is "afoot", as Sherlock would say. The thin reed if you will, or the black swan effect.
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