Dividends have long been a nice reward for stockholders – their opportunity to share in a company’s profits. But amid the deepening recession, many cash-strapped companies are slashing their dividends at a furious pace. Just today, GE , parent company of CNBC, announced it would slash its dividend 68 percent, to 10 cents per share, beginning in the third quarter. Previously, JPMorgan cut its dividendfrom 38 cents per share to just a nickel.
Bill Losey, one of our resident CFPs, calls it a generational shift. Companies need cash to survive and it’s a positive sign so many of them are being proactive and thinking ahead enough to realize those dividends they pay out could go to better use keeping the business running and people employed. Perhaps now investors won’t take dividends for granted and realize they are relegated as returns for more prosperous times.
Focusing on dividends is a bad strategy anyway, says CFP Kelly Campbell of Campbell Wealth Management. A successful investor knows it’s about total return – dividend plus capital appreciation. A company can pay out a 6 percent dividend and still lose 20 percent of its value.
That said, Losey and Campbell agree that dividends should still remain a part of any well-balanced portfolio. Just don't chase them.