Investors have plenty of reason to be skittish on dividend stocks right now. GE just did the unthinkable for a blue-chip stock, cutting its dividend to a penny.
There are multiple risks to corporate profits that could make it more difficult for reliable dividend payers to meet their commitments. Fears are mounting that the stock market is at peak earnings and the strong U.S. dollar will continue to hit bottom lines. The global macroeconomic view is mixed, with the slowdown in China and the trade war continuing to weigh on investors' outlook. And dividend stock yields don't look as enticing compared to bond yields when the Federal Reserve is raising rates.
Not to mention, October has been a frightening month for the market -- if the worst were to occur, a bear market, one need only look back to 2008-2009 to know how quickly dividends can disappear. A total of 527 companies cut their dividends in 2009, according to S&P Dow Jones Indices, including Alcoa, Dow Chemical, Macy's, JP Morgan Chase, Bank of America and, yes, GE. Not every company can be a Coca-Cola, which has paid a dividend for more than five decades without an interruption — one reason Warren Buffett is a longtime shareholder.
In addition, companies are increasing share buyback activity at a greater pace than they are dividend payouts. But the dividend fears in the market right now mask several truths about dividends' value to investors.