Readers sometimes ask why I recommend stocks that recently cut their dividends. It’s a reasonable concern. Strong companies, by and large, boost their payouts, so slashing the distribution probably signals that something is wrong. Dividend cutters, however, often represent remarkable bargains. After companies slash their payouts, investors all tend to dump their shares at the same time. During these occasions, you can sometimes pick up good, albeit slightly damaged, assets for pennies on the dollar.
Case in point: Dynagas LNG Partners LP (NYSE:DLNG). This limited partnership owns dozens of ocean vessels that ship liquefied natural gas around the world. And while the company’s dividend history has a few blemishes, units could represent a real bargain for income investors. In April, Dynagas cuts its distribution by 41%. Simply put, management fell into the trap many businesses fall into: they committed to a large payout supported by unsustainably high profits during the “good times.”
Source: Income Investors
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- Dividends vs. Stock Buybacks
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