I often argue that a dividend cut is not always sell signal.
Imagine that ABC company cuts dividends in half after N years of good DG history. Investor X recently bought ABC and her YoC=3% so she might consider to sell ABC instantly. Investor Z bought ABC many years ago and his YoC was 30% before cut and 15% after cut so she might hold ABC if the reason for cut is not real disaster for this for dividend investor (Di).
But quite often even stronger harm that a dividend cut occurs - this is dividend suspension or omission. In this case I think Di should sell the company stocks. Bur as always in stock market there are exclusion from this rule, e.g. dividend suspension by BP in 2010 under pressure of Obama administration. I decided to hold BP because it was clear to me that company wanted to pay dividends. They not only re-established dividends in 2011 but increased dividends in 2012.
I also admit Telefonica decision:
"The Board of Directors has decided that under the criteria of prudent administration it is in the best interest of all Telefónica's stakeholders that the dividend and share buyback program corresponding to 2012 be cancelled as a one-time exceptional measure.
The objectives underlying this decision are:
To further strengthen the balance sheet through retained earnings, deleveraging and increasing shareholder value.
To substantially accelerate debt reduction in the short term.
To decouple from exogenous macroeconomic factors affecting our country of domicile.
To immunize from debt markets liquidity conditions, by having debt maturities covered till the end of 2013
To de-risk the execution of the already announced portfolio management and asset divestment program, to which the Company remains fully committed.
To continue investing in profitable growth in our operations.
The Company will resume its shareholder remuneration in 2013 by paying a dividend of 0.75 euros per share. The Company intends to pay in two tranches: a first payment in Q4 2013 and a second one in Q2 2014."
So I decided to hold TEF and due my wide diversification this (as well as BP) dividend suspension is not critical for my income stream.