When a Dividend Cut Is a Good Thing

Includes: MFC, SUN
by: Market Blog

Investors continue to take a favorable view of dividend cuts by U.S. companies. There has been a rash of dividend cuts since the start of the financial crisis, and companies have generally been rewarded by the market for taking a more cautious approach to distributing cash. Heck, some companies have been hailed for being responsible.

On Tuesday, oil refiner Sunoco Inc. (NYSE:SUN) sliced its dividend in half. Its chief executive told analysts: “Sunoco, like every other refiner, is facing serious challenges. The near-term outlook remains challenging.”

The response? On Wednesday afternoon, the stock was up 1.6%. As Stocks To Watch Today blogger Bob O’Brien pointed out, there is more at work here than the dividend cut. Sunoco also announced plans to close one refining plant and double production at two others – a move that will save the company $250-million a year. Still, dividend cuts tend to overshadow other initiatives.

There have been relatively few high-profile cuts in Canada, but they tend to be greeted far differently. For example, Manulife Financial Corp. (NYSE:MFC) announced a dividend cut in early August, and the response was vitriolic: Manulife shares fell 14.8% in one day.