Warnings From Crumbling Dividend Stocks

As an income investor, one of my priorities is to satisfy two simultaneous desires: the protection of current income as well as the organic growth of an income stream over time at a rate greater than inflation. To state the obvious, the implication is that I do not want a portfolio stuffed with companies that could cut their dividends after I spend years putting together a nice position in them. When I review the histories of the fallen dividend darlings, there are usually strong signals ahead of time that may warn you that a dividend company is falling apart.

In some ways, a basic look at a company's business model can indicate that a meaningful dividend growth record should prove unsustainable over the long term. Often enough, a company's dividend will cough and wheeze for an extended period of time before the company itself crumbles. A dividend freeze or cut is one of the best "canaries in the coalmine" that can indicate trouble for long-term investors in a particular company. But in the case of companies that do experience long-term earnings trouble, a dividend cut or freeze often precedes the difficulties to come (a notable exception would be collapsing financial companies).

Source: Seeking Alpha

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