Is A Dividend Cut The End Of The World? Total Return And Final Thoughts, Part V

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Includes: AAPL, ADP, AFL, ARCH, ASB, AVP, AVY, AZN, BAC, BAX, BBT, BDX, BWP, CAT, CEO, CHEV, CHL, CL, CLX, CMA, COP, CVX, D, DE, DX, EMR, EOC, FITB, FNB, FULT, FUN, GCI, GE, GIS, GPC, GTY, HBOS, HCBK, HCP, HSY, IBM, INFY, IRET, JNJ, KEY, KHC, KIM, KMB, KMI, KO, KOF, LM, LMT, LNC, LSBK, LZB, MAS, MCD, MKC, MMM, MO, MSFT, NE
by: Accelerating Dividends

Summary

The DG50 portfolio by Mike Nadel is compared against the dividend cutting companies sample from this series to analyze the total returns of both samples and which is better.

There are several years in which the DG50 sample significantly outperformed the sample of dividend cutting companies.

I discuss why I believe an investor should sell a dividend cutting company after its announcement.

INTRODUCTION

This is part V and the finale of a series of articles analyzing data obtained from companies that cut their dividend. My intention throughout this series was to provide more information regarding trends and tendencies so that investors can make more informed decisions should they experience this kind of event within their portfolio. This series has sought to answer these questions in particular and more while the data was being explored (or as suggestions or questions come up from the comments section). The questions were:

  1. What is the average percentage that a dividend is cut?
  2. What is the stock price movement of a company after it announces a dividend cut?
  3. What is the general trend prior to a company's announcement of a dividend cut?
  4. What percentage of companies after having cut their dividend initially subsequently cut their dividend?
  5. Does a company's stock price ever recover and reach new all-time highs?

The other articles in this series have covered the following topics:

  1. Part I: Methodology, sample characteristics and average dividend cut percentage
  2. Part II: Trends and patterns in the stock price prior to and after a dividend cut announcement
  3. Part III: Impact on income, subsequent dividend cuts and recovery to previous payout levels
  4. Part IV: Stock price recovery following a dividend cut and investing in companies after they have cut their dividends (the contrarian view)

In this article, I will analyze the total return of the companies in the sample against the sample of companies that were provided by Mike Nadel's article that initiated a new nifty fifty of dividend growth stocks that he has now labeled the Dividend Growth 50 (DG50). Although Mike has made some modifications to suit his own tastes and due diligence, I am using the original sample obtained from the first article he published in his series. I will then conclude by summarizing the findings from this series and provide my personal opinion regarding what I may do should one of the companies in my portfolio cut their dividends.

ANALYSIS

The following table presents the annual growth of $10,000 from 2008 until YTD 2015-01-31 and the trailing total returns [TTR] for the companies in the sample and the DG50. All data was obtained from Morningstar. I should note that there are two companies found within the DG50 sample and the study sample (my sample of dividend cutters) that are the same. These companies are Wells Fargo (NYSE:WFC) and General Electric (NYSE:GE). Because both of these companies cut their dividends, I have removed them from the DG50 sample making the total number of companies within the DG50 sample 48. All figures in the table represent a percentage (%).

Company

Symbol

Sector

2008

2009

2010

2011

2012

2013

2014

YTD

TTR 1-Year

TTR 3-Year

TTR 5-Year

TTR 10-Year

DIVIDEND CUTTERS STUDY SAMPLE

Arch Coal Inc.

(NYSE:ACI)

Basic Materials

-62.99

38.80

59.33

-57.39

-48.17

-37.57

-59.78

-47.90

-70.38

-53.04

-35.96

-15.18

Boardwalk Pipeline Partners LP

(NYSE:BWP)

Basic Materials

-36.82

79.87

10.42

-4.38

-2.32

11.04

-28.80

-14.12

23.90

-8.30

-4.16

N/A

CNOOC Ltd.

(NYSE:CEO)

Basic Materials

-40.27

68.10

56.39

-24.16

29.12

-11.36

-23.91

-1.69

-11.53

-10.35

1.22

13.74

Noble Corp.

(NYSE:NE)

Basic Materials

-59.30

85.08

-9.93

-13.96

17.02

9.79

-45.09

-2.11

-29.18

-15.14

-9.20

-0.52

China Petroleum & Chemical Corp.

(NYSE:SNP)

Basic Materials

-56.95

44.22

11.46

13.50

13.93

-2.57

3.31

-2.22

6.74

-0.59

9.80

12.21

Coca-Cola FEMSA S.A.B. de C.V.

(NYSE:KOF)

Consumer Goods

-10.73

52.31

27.15

17.97

58.57

-16.77

-27.16

-6.04

-17.93

-3.61

9.05

13.65

Avery Dennison

(NYSE:AVY)

Consumer Goods

-35.32

15.22

18.22

-29.90

25.52

46.99

6.04

0.75

10.74

24.79

12.60

0.89

La-Z-Boy Inc.

(NYSE:LZB)

Consumer Goods

-70.87

339.17

-5.35

31.93

19.24

120.35

-12.58

-0.56

3.51

26.55

22.17

6.78

Pitney Bowes Inc.

(NYSE:PBI)

Consumer Goods

-29.34

-5.02

12.65

-17.20

-34.52

127.80

7.81

-1.60

-7.78

11.52

4.94

-2.89

Avon Products Inc.

(NYSE:AVP)

Consumer Goods

-37.19

34.58

-4.95

-36.72

-13.51

21.59

-44.08

-17.57

-40.96

-18.12

-17.12

-10.18

Cheviot Financial Corp.

(NASDAQ:CHEV)

Financial

-32.18

14.57

20.43

-16.40

29.30

14.62

41.46

-5.70

41.91

22.91

15.37

2.19

Heritage Financial Group

(NASDAQ:HBOS)

Financial

-17.51

-15.89

76.28

-4.03

19.92

39.59

36.00

-7.45

30.60

26.53

26.75

N/A

Lake Shore Bancorp Inc.

(NASDAQ:LSBK)

Financial

-16.96

15.14

20.45

6.53

10.37

21.28

13.44

2.88

12.49

13.46

13.08

N/A

Associated Banc-Corp

(NYSE:ASB)

Financial

-18.05

-45.15

37.97

-26.01

19.52

35.14

9.20

-9.77

12.33

14.56

8.36

-3.23

Bank of America

(NYSE:BAC)

Financial

-60.45

7.24

-11.16

-58.02

109.53

34.45

15.67

-15.32

-2.37

27.08

2.61

-5.95

BB&T Corp.

(NYSE:BBT)

Financial

-4.40

-3.10

5.99

-1.83

18.67

32.05

6.75

-9.26

2.60

11.19

8.86

2.05

Comerica Inc.

(NYSE:CMA)

Financial

-49.09

49.97

43.69

-37.97

19.73

58.93

0.19

-11.40

-0.93

16.18

6.46

-0.15

Fifth Third Bancorp

(NASDAQ:FITB)

Financial

-64.15

18.52

50.97

-11.44

22.33

41.45

-0.69

-15.09

-9.73

14.67

11.48

-5.88

F.N.B. Corp.

(NYSE:FNB)

Financial

-3.67

-44.92

51.69

20.06

-1.86

23.35

9.35

-9.91

11.24

6.36

17.08

-0.07

Fulton Financial

(NASDAQ:FULT)

Financial

-8.91

-8.11

19.95

-3.19

1.02

39.49

-2.94

-9.79

-2.87

10.41

7.69

-0.83

KeyCorp

(NYSE:KEY)

Financial

-59.40

-33.77

60.18

-11.98

11.83

61.94

5.44

-6.55

10.62

22.41

16.44

-5.14

Legg Mason

(NYSE:LM)

Financial

-68.74

39.16

20.82

-32.86

8.65

71.00

24.15

3.88

37.33

29.06

18.21

-2.48

Lincoln National

(NYSE:LNC)

Financial

-64.79

33.33

11.94

-29.45

35.02

101.16

12.96

-12.99

18.93

34.94

19.18

2.93

National Penn Bancshares

(NASDAQ:NPBC)

Financial

0.35

-58.17

39.38

6.23

15.28

24.79

-3.49

-6.79

4.01

10.10

13.70

-3.07

Old National Bancorp

(NYSE:ONB)

Financial

27.54

-29.13

-2.09

0.34

4.98

32.86

-0.33

-9.88

4.18

7.59

6.81

-0.83

Peoples Bancorp OH

(NASDAQ:PEBO)

Financial

-19.49

-45.95

65.81

-3.45

40.99

12.82

17.86

-11.88

13.99

14.31

15.34

1.03

Regions Financial

(NYSE:RF)

Financial

-62.28

-31.91

33.08

-38.00

66.74

40.11

8.59

-17.61

-7.77

19.35

8.79

-7.49

Synovus Financial

(NYSE:SNV)

Financial

-16.82

-74.82

30.73

-45.08

76.60

48.57

8.73

-4.87

17.08

28.61

9.79

-7.23

State Street Corp.

(NYSE:STT)

Financial

-50.39

10.81

6.52

-11.46

19.00

58.33

8.54

-8.90

13.67

25.38

12.42

6.32

Susquehanna Bancshares

(NASDAQ:SUSQ)

Financial

-8.08

-60.65

65.03

-12.60

28.40

24.81

7.24

-5.44

26.14

15.01

13.12

-3.01

U.S. Bancorp

(NYSE:USB)

Financial

-15.85

-9.20

20.70

2.15

20.96

29.26

13.65

-6.76

12.27

17.37

15.17

5.90

Washington Federal

(NASDAQ:WAFD)

Financial

-25.91

30.61

-11.43

-15.78

22.87

40.31

-3.36

-9.75

-4.86

11.45

3.18

0.80

Hudson City Bancorp

(NASDAQ:HCBK)

Financial

9.25

-10.28

-2.84

-47.88

35.20

18.45

9.01

-11.36

5.83

13.59

-3.11

2.08

S&T Bancorp

(NASDAQ:STBA)

Financial

32.92

-50.37

36.33

-10.80

-4.50

43.44

20.47

-7.78

32.35

11.48

13.69

-0.11

SunTrust Banks Inc.

(NYSE:STI)

Financial

-48.17

-30.57

45.64

-39.61

61.30

31.08

15.73

-8.31

8.30

24.03

13.42

-3.12

Valley National Bancorp

(NYSE:VLY)

Financial

15.96

-22.79

11.62

-4.11

-15.53

15.24

0.30

-6.49

2.04

-0.94

1.19

-1.37

Wells Fargo & Co.

Financial

1.95

-6.78

15.56

-9.52

27.21

36.19

23.72

-5.29

20.30

23.87

16.56

7.67

Wesbanco Inc.

(NASDAQ:WSBC)

Financial

37.52

-51.56

58.18

5.96

17.72

47.52

11.50

-13.28

22.16

21.48

21.21

4.25

Astrazeneca plc

(NYSE:AZN)

Healthcare

0.26

19.50

3.54

6.06

8.27

31.52

23.26

0.94

8.83

17.70

12.57

8.54

Pfizer Inc.

(NYSE:PFE)

Healthcare

-16.45

7.23

0.22

28.16

19.96

25.96

5.09

0.32

10.76

20.89

16.74

5.68

National Presto Industries

(NYSE:NPK)

Industrial Goods

54.29

49.06

26.49

-21.66

-12.82

16.50

-21.63

8.55

-10.56

-7.31

-3.40

10.01

General Electric

Industrial Goods

-52.95

-2.84

23.93

1.26

21.11

37.30

-6.67

-5.46

0.90

12.88

12.34

-0.88

Masco Corp.

(NYSE:MAS)

Industrial Goods

-44.22

28.21

-6.15

-14.85

61.83

38.48

12.12

-1.07

17.88

28.62

14.97

-1.60

Vulcan Materials

(NYSE:VMC)

Industrial Goods

-9.55

-22.18

-13.88

-9.58

32.38

14.24

10.99

7.27

19.35

18.60

13.21

4.40

Dynex Capital Inc.

(NYSE:DX)

REIT

-18.26

47.55

36.31

-6.41

15.99

-3.39

15.62

1.45

13.64

8.18

8.98

7.21

Investors Real Estate Trust

(NASDAQ:IRET)

REIT

26.92

-9.59

7.29

-11.95

26.80

4.24

1.28

0.98

-3.54

6.98

4.38

3.04

UDR Inc.

(NYSE:UDR)

REIT

-19.04

24.04

47.48

9.99

-0.90

2.08

36.34

8.76

27.52

11.58

19.57

6.74

Washington REIT

(NYSE:WRE)

REIT

-4.43

3.46

18.77

-6.15

0.98

-6.08

23.54

3.80

29.83

2.04

7.05

3.70

Getty Realty Corp.

(NYSE:GTY)

REIT

-14.06

20.70

41.05

-50.74

32.15

6.42

4.35

1.76

0.43

4.63

2.11

1.85

Kimco Realty

(NYSE:KIM)

REIT

-45.16

-22.05

38.21

-5.93

23.77

6.65

31.92

9.98

30.15

16.85

19.27

2.91

Corporate Office Properties Trust

(NYSE:OFC)

REIT

1.98

24.30

-0.19

-34.45

22.67

-0.76

24.40

5.75

16.24

11.01

0.65

4.58

Gannett Company

(NYSE:GCI)

Services

-75.38

87.62

2.69

-9.81

40.69

68.68

10.65

-2.88

26.29

36.01

21.20

-6.28

Supervalu Inc.

(NYSE:SVU)

Services

-59.26

-8.18

-21.48

-12.05

-67.43

195.14

33.06

0.41

67.91

14.13

-6.31

-8.15

Cedar Fair LP

(NYSE:FUN)

Services

-31.64

0.88

35.06

48.42

63.02

55.92

2.22

13.57

14.29

30.84

40.45

8.12

Watsco Inc.

(NYSE:WSO)

Services

9.22

32.47

32.95

7.63

25.46

29.79

13.47

2.39

18.84

19.57

19.78

13.53

China Mobile Limited

(NYSE:CHL)

Technology

-39.61

-5.55

10.45

1.83

25.59

-7.14

16.38

11.05

42.32

13.03

9.32

17.87

Telefonica S.A.

(NYSE:TEF)

Technology

-27.45

29.91

-12.49

-15.30

-17.63

24.62

-7.10

4.93

0.84

-0.96

-2.38

3.42

Infosys Technologies Ltd.

(NASDAQ:INFY)

Technology

-44.02

126.81

39.83

-31.49

-16.02

35.74

13.25

8.33

26.09

10.67

7.37

7.97

Empresa Nacional de Electricidad SA

(NYSE:EOC)

Utility

-8.34

53.15

13.32

-17.46

13.69

-6.82

2.98

-4.18

9.78

-2.55

0.28

11.59

DIVIDEND GROWTH 50 SAMPLE

Company

Symbol

Sector

2008

2009

2010

2011

2012

2013

2014

YTD

TTR 1-Year

TTR 3-Year

TTR 5-Year

TTR 10-Year

Johnson & Johnson

(NYSE:JNJ)

Healthcare

-7.61

10.88

-0.70

9.67

10.55

34.35

17.19

-4.24

17.19

19.65

12.62

7.00

Chevron

(NYSE:CVX)

Basic Materials

-18.03

7.68

22.21

19.99

4.93

19.11

-6.82

-8.60

0.54

4.92

12.20

9.00

Coca-Cola

(NYSE:KO)

Consumer Goods

-23.76

29.53

18.47

9.24

6.53

17.05

5.16

-2.49

12.81

10.42

11.89

9.08

Kimberly-Clark

(NYSE:KMB)

Consumer Goods

-20.59

25.35

3.09

21.13

18.80

27.56

18.65

-6.56

8.14

19.99

16.87

7.52

Procter & Gamble

(NYSE:PG)

Consumer Goods

-13.69

0.86

9.21

6.90

5.08

23.40

15.00

-6.76

11.89

13.28

9.35

7.15

ExxonMobil

(NYSE:XOM)

Basic Materials

-13.14

-12.50

9.78

18.45

4.68

19.77

-5.98

-5.44

2.77

5.41

9.31

6.86

McDonald's

(NYSE:MCD)

Consumer Goods

8.33

3.70

26.55

34.00

-9.22

13.54

-0.05

-1.34

2.26

1.33

11.16

13.57

PepsiCo

(NYSE:PEP)

Consumer Goods

-25.67

14.25

11.35

4.66

6.34

24.48

17.06

-0.82

26.69

18.83

12.79

7.98

Southern Company

(NYSE:SO)

Utility

-0.23

-5.26

20.15

25.98

-3.32

0.73

24.53

3.28

18.79

6.25

12.81

7.01

AT&T

(NYSE:T)

Technology

-27.57

4.11

10.81

8.78

17.29

9.64

0.77

-0.60

9.98

10.09

11.41

7.60

Colgate-Palmolive

(NYSE:CL)

Consumer Goods

-10.08

22.37

0.30

17.78

15.79

27.30

8.28

-1.89

13.64

17.27

13.52

11.25

General Mills

(NYSE:GIS)

Consumer Goods

9.47

19.52

3.49

16.83

3.17

26.99

10.08

-0.83

12.00

13.77

11.51

9.25

Realty Income

(NYSE:O)

REIT

-8.15

19.30

38.64

7.30

20.10

-1.75

33.68

14.23

30.55

15.90

18.57

10.76

Target

(NYSE:TGT)

Consumer Goods

-29.74

41.99

26.05

-12.99

18.10

9.60

22.98

-3.03

37.07

15.71

11.09

5.70

3M

(NYSE:MMM)

Industrial Goods

-29.39

47.22

6.93

-2.75

16.49

53.79

19.60

-1.23

28.97

25.88

17.28

8.36

Altria

(NYSE:MO)

Consumer Goods

-30.41

39.11

32.86

26.85

11.77

27.96

33.55

7.77

61.53

27.33

26.43

16.10

Genuine Parts

(NYSE:GPC)

Consumer Goods

-16.27

4.49

39.57

22.71

7.12

34.22

30.87

-12.79

19.16

16.59

22.90

10.03

Lockheed Martin

(NYSE:LMT)

Industrial Goods

-18.38

-7.60

-3.72

20.37

19.21

66.26

33.23

-2.18

28.08

34.04

23.19

14.17

Microsoft

(NASDAQ:MSFT)

Technology

-44.10

59.47

-6.63

-4.55

6.09

43.69

27.24

-13.02

17.09

14.13

10.61

6.48

Philip Morris

(NYSE:PM)

Consumer Goods

N/A

15.90

26.52

38.90

10.70

8.45

-2.07

-1.49

8.68

5.02

15.13

N/A

Walgreen Boots Alliance

(NASDAQ:WBA)

Consumer Goods

-34.13

50.87

7.80

-13.09

14.97

58.39

34.93

-3.22

25.91

33.95

20.24

7.25

AFLAC

(NYSE:AFL)

Financial

-25.28

3.34

24.48

-21.16

25.89

28.43

-6.30

-6.56

1.47

11.00

7.56

6.39

Baxter Int'l

(NYSE:BAX)

Healthcare

-6.11

11.49

-11.72

0.25

37.89

7.22

8.32

-4.07

3.30

9.79

6.76

9.01

ConocoPhillips

(NYSE:COP)

Basic Materials

-39.21

2.28

37.56

10.88

8.86

26.49

1.77

-8.80

7.85

11.28

16.37

8.52

Deere

(NYSE:DE)

Industrial Goods

-57.68

44.08

55.81

-4.96

14.10

8.04

-0.60

-3.71

4.20

2.76

13.33

11.44

Emerson Electric

(NYSE:EMR)

Utility

-33.22

19.98

37.37

-16.00

17.13

35.65

-9.53

-7.76

-7.74

6.58

7.12

7.63

IBM

(NYSE:IBM)

Technology

-20.39

58.09

14.03

27.27

5.97

-0.15

-12.20

-4.44

-9.52

-4.08

7.23

6.90

Kinder Morgan Inc.

(NYSE:KMI)

Basic Materials

N/A

N/A

N/A

N/A

13.99

6.31

22.25

-1.90

26.55

12.41

N/A

N/A

Visa

(NYSE:V)

Consumer Goods

N/A

67.59

-18.93

45.21

50.27

47.82

18.50

-2.78

20.61

33.42

26.11

N/A

Wal-Mart

(NYSE:WMT)

Consumer Goods

19.95

-2.71

3.16

13.52

16.83

18.09

11.58

-1.05

17.99

14.01

12.20

6.59

Becton Dickinson

(NYSE:BDX)

Healthcare

-16.76

17.30

9.10

-9.61

7.11

43.91

27.97

-0.70

27.50

24.63

14.98

10.24

Verizon

(NYSE:VZ)

Technology

-18.03

3.20

21.49

17.61

12.87

18.36

-0.45

-1.11

10.08

14.17

17.17

7.62

Apple

(NASDAQ:AAPL)

Technology

-56.91

146.90

53.07

25.56

32.71

7.64

40.03

6.14

65.56

22.52

35.50

36.43

Automatic Data Processing

(NASDAQ:ADP)

Technology

-8.96

12.23

11.30

19.89

8.41

45.06

20.09

-1.01

35.23

24.56

21.26

11.25

Caterpillar

(NYSE:CAT)

Industrial Goods

-36.29

31.34

67.36

-1.35

2.22

3.26

3.66

-11.86

-9.32

-6.63

10.98

8.10

Clorox

(NYSE:CLX)

Consumer Goods

-12.11

13.25

7.18

8.82

13.73

30.37

15.47

3.11

27.69

19.69

14.95

7.92

Dominion Resources

(NYSE:D)

Utility

-21.14

13.48

14.47

28.86

1.56

29.23

22.58

-0.01

10.67

17.46

17.96

10.07

J.M. Smucker

(NYSE:SJM)

Consumer Goods

-3.54

45.57

8.83

21.87

12.88

22.70

-0.19

2.15

21.60

14.41

15.29

10.79

Kraft Foods

(KRFT)

Consumer Goods

N/A

N/A

N/A

N/A

N/A

23.07

20.22

4.28

26.42

N/A

N/A

N/A

McCormick

(NYSE:MKC)

Consumer Goods

-13.58

16.48

31.72

10.83

28.52

10.67

10.00

-3.92

16.86

15.70

17.44

8.45

Qualcomm

(NASDAQ:QCOM)

Technology

-7.37

30.98

8.58

12.21

15.25

22.13

2.28

-15.97

-5.03

6.37

14.83

8.06

Starbucks

(NASDAQ:SBUX)

Consumer Goods

-53.79

143.76

40.89

44.94

18.13

47.83

6.07

6.68

23.42

24.25

33.24

14.21

United Technologies

(NYSE:UTX)

Industrial Goods

-28.21

32.37

15.86

-4.78

14.98

41.44

3.13

-0.19

7.73

14.67

14.18

10.18

Wisconsin Energy

(NYSE:WEC)

Utility

-11.60

21.92

21.33

22.32

8.84

16.11

31.35

5.75

24.49

17.86

19.18

13.18

HCP

(NYSE:HCP)

REIT

-14.92

16.60

26.56

17.83

13.83

-14.92

27.23

7.40

18.49

5.75

13.47

8.91

Hershey

(NYSE:HSY)

Consumer Goods

-8.81

6.45

35.32

33.96

19.42

37.14

8.99

-1.65

4.30

23.28

25.02

6.84

NextEra Energy

(NYSE:NEE)

Utility

-23.12

8.70

2.22

21.33

17.59

27.56

27.53

2.78

17.37

23.25

20.59

12.28

Omega Healthcare

(NYSE:OHI)

REIT

6.92

29.30

22.42

-6.86

31.99

32.75

37.89

13.62

37.58

28.24

21.82

16.90

An independent samples T-Test compared the returns between the DG50 (non-dividend cutters) and the study sample (dividend cutters) to determine if there was a significant difference between the two groups in total returns. A review of the differences in the Mean (average) between the two groups and the growth of $10,000 between 2008 and YTD, 1-year, 3-year, 5-year, and 10-year trailing total returns reveals some important information. All figures were calculated using SPSS 20.0.

N

Mean

Std. Deviation

t

df

Sig. (2-tailed)

2008

Dividend Cutters

59

-24.5208

29.91362

-1.155

94.309

.251

Non-Dividend Cutters

44

-19.1659

16.67170

2009

Dividend Cutters

59

13.9502

59.12498

-1.311

92.532

.193

Non-Dividend Cutters

46

25.7654

31.75531

2010

Dividend Cutters

59

22.3764

23.55893

1.009

102.897

.315

Non-Dividend Cutters

46

18.3085

17.74475

2011

Dividend Cutters

59

-11.7795

21.38248

-6.557

103

.000

Non-Dividend Cutters

46

12.9261

15.83409

2012

Dividend Cutters

59

18.7405

28.51382

1.190

76.611

.238

Non-Dividend Cutters

47

13.9604

10.49512

2013

Dividend Cutters

59

32.4849

36.82388

1.522

84.674

.132

Non-Dividend Cutters

48

24.3071

16.81403

2014

Dividend Cutters

59

5.6003

19.38571

-2.539

105

.013

Non-Dividend Cutters

48

14.0733

13.96323

YTD

Dividend Cutters

59

-4.3605

9.48343

-1.813

100.505

.073

Non-Dividend Cutters

48

-1.6006

6.17316

1-Year

Dividend Cutters

59

9.6061

20.56816

-2.08

105

.040

Non-Dividend Cutters

48

17.0644

15.39712

3-Year

Dividend Cutters

59

12.1956

14.75811

-1.24

104

.218

Non-Dividend Cutters

47

15.2577

9.27674

5-Year

Dividend Cutters

59

9.2261

11.12406

-3.91

95.55

.000

Non-Dividend Cutters

46

15.9874

6.40496

10-Year

Dividend Cutters

56

1.9288

6.60368

-7.03

97.66

.000

Non-Dividend Cutters

44

10.0007

4.87634

In 2008 when the market declined due to the financial crisis, non-dividend cutters had a small decline on average than the companies in the sample that cut their dividends. In 2009, non-dividend cutters had nearly double the appreciation than dividend cutters. In 2010, dividend cutters exceeded the average appreciation of non-dividend cutters by about 4%, however, this was overshadowed by a decline in appreciation in 2011 where the non-dividend cutting companies excelled (M = 12.9261 vs. M = -11-.7795). Despite this drawback, the appreciation by dividend cutting companies in 2012 and 2013 were higher than non-dividend cutting companies. The YTD appreciation shows a smaller decline for non-dividend cutters than dividend cutters. The greater appreciation by dividend cutting companies may have been related to bargain picking as the valuation of these companies suffered due to the dividend cut and the impact of the financial crisis. Investors may have hoped that these companies would rebound significantly for a substantial profit. Perhaps because the S&P 500 (NYSEARCA:SPY) remained flat in 2011 and investors struggled with Europe's debt crisis, investors fled the dividend cutters to non-dividend cutters due to the relative stability of the companies within that sample and the income they provide to investors. However, it would appear that once again, as the market appeared to be recovering and the bull market was in full swing, dividend cutters went along for the ride and because they had on average appeared undervalued and a bargain in 2011, investors bought these companies in 2012 and 2013. In 2014, with the increase in market volatility, the crisis in Ukraine, sanctions against Russia, a slowing Chinese economy and the re-emergence of Greece as a threat to Europe, investors shed riskier investments and moved back to non-dividend cutting companies. Many other scenarios may play out to explain the reasons for these differences in means however it is important to note that the growth of $10,000 was much more volatile for the dividend cutting companies than the non-dividend cutting companies. One should also remember that a handful of companies truly excelled after their dividend was cut (e.g., FUN, GCI, and USB in particular), which may have contributed to the outperformance of dividend cutters during certain years.

When analyzing the difference in means between the two groups and their trailing total returns, it is immediately observed that the non-dividend cutting companies had superior returns over a 1-, 3-, 5- and 10- trailing year periods. The impact of dividend cuts becomes more apparent when looking at the mean of the 10-year trailing total return. The non-dividend cutting companies had a return of 10.00% over 10 years while the dividend cutting companies had a return of 1.93% over the same period. It should be reiterated that the trailing 10-year period covered several years leading up to the financial crisis. This gave the dividend cutting companies the possibility of logging several profitable years prior to the dividend cut and financial crisis. This finding alone provides some evidence that a dividend cut has a considerable impact on the total return of a company over the long term. In this case, the sample of non-dividend cutting companies had a total return that was 5 times that of the dividend cutting companies. The 10-year trailing total return of the SPY is 2.19%, which barely exceeded the total returns of the dividend cutting companies but failed to outperform the non-dividend cutting companies. This further helps to reinforce the point regarding the strong returns that non-dividend cutting companies can have, even market beating returns.

Despite these observations in the differences of the means, are any of these findings significant and not likely due to chance? The t-test shows that only in 2011 (t (103) = -6.56, p = .000) and 2014 (t (105) = -2.53, p = .013) were there significant differences in means between non-dividend cutters and dividend cutters. Although non-dividend cutting companies have a significant difference at certain times which may be associated with certain market situations, on a year by year basis, the appreciation of dividend cutting and non-dividend cutting companies may be due to chance or speculators (such as the scenario I previously presented). It is interesting that the uncertainties that occurred in 2011 and 2014 lead to significant differences between the two groups and suggest that investors flock to the perceived safety of non-dividend cutting companies during uncertain times. In other times, investors seem to have an indifference towards the two groups. However, when analyzing the difference in the trailing total return, a different picture emerges. Except for the 3-year trailing total return (t (104) = -1.24, p = .218), cutting dividends had a significant impact on the total returns over 1-year, 5-year and 10-year periods.

Readers of this series have come to know that I have presented results of the analysis based on sector and CCC list classification. In this case, I cannot present the results for either the sector of CCC list classification because there are too few companies being represented in both samples to run a t-test.

DISCUSSION

From the beginning of this series, I reiterated the inherent bias found within the data because it was heavily loaded on financials and Champions due to the timeframe that David Fish began the CCC list. Every sector was represented however some were noticeably infrequent such as utilities and healthcare. No doubt this would have changed with data that actually included the contenders and challengers from the beginning of the CCC list and not several years later. It wasn't until late 2008 that the contenders were included and it wasn't until 2010 that the challengers were included. If we consider only the companies that have cut their dividend since 2011 to 2014, thus allowing the full CCC classification to be considered, it is observed that companies classified as challengers (n = 15) have cut their dividends more than contenders (n = 6) and champions (n = 3). Given this finding, it suggests that the companies with a less established dividend history have a tendency to cut their dividends than companies with longer more established dividend histories.

In this series I have reiterated that theme based market crashes will affect companies who are impacted by that theme the most. During the Dot Com bubble, it was tech stocks that were hit the hardest. During the financial crisis and housing bubble, it was financial companies that were crushed. When the CCC list was first constructed in 2008, it contained only champions but later contenders were included. Looking at companies that cut their dividends, it was observed in the data that in 2009, financial companies (and REITs) who were classified as champions and contenders were the ones who more frequently cut their dividends than other sectors. Therefore, if there is one thing to take away from this is that whatever the underlying theme of the next economic or market crisis, the companies found in an investor's portfolio that are linked to that theme should be monitored more closely than usual. As we have seen with the recent decline in oil prices, many companies have cut their dividends. I am glad to report that none on the CCC list have at this time.

In the latest crisis, financials were hardest hit. This may be reflected in how 50% of the companies in the sample subsequently cut their dividend a second time. All the other sectors combined equaled the same number of companies within the financial sector that cut their dividends. This could demonstrate the impact that theme based crises have on the companies within those sectors. However, the companies within the financial sector do show signs of recovering. Only 6 financial companies have failed to raise their dividends even once since they were cut. All the other companies in the sample have raised them at least once with an average of 3. However, there is a more noteworthy thing to consider. Many dividend investors have a distrust of the financial sector and either refuse to include financials in their portfolio or underweight them. This distrust could further contribute to the lack of underperformance of these stocks. This means that if an investor is hoping for a recovery particularly in the stock price, this seems less likely. Furthermore, these companies are not necessarily encouraging investment in their stocks again because they the dividend is far from what it used to be or the company is not seen as making an aggressive return unlike WFC.

It was interesting to note that the average price drop on the day (or day after depending when the announcement was released) resulted in an average share price decline of -4.05%. Even after taking into consideration the financial crisis and how stock prices were declining in general, I refocused this analysis to include only companies who cut their dividends from 2011 to the present to remove this influence. The stock price decline out of 24 companies was -2.94%. Even this number is heavily influenced by BWP's -45.99% price decline. By removing this company, the stock price decline of the 23 companies who cut their dividend between 2011 and 2014 was -1.06%. What does this mean? It suggests that companies like BWP, FITB, and BAC may have surprised the market with their announcement of a dividend cut. This may suggest that a dividend cut was perhaps anticipated in advance of an actual announcement therefore when the official announcement was made, the dividend cut was already priced into the stock. This hypothesis is reinforced by the findings that the majority of the stock prices of the companies in the sample were already in a decline prior to the announcement. The majority were also considerably off from their all-time high stock prices and were considerably lower from their most recent high prior to the stock price decline. This suggests that the market knew something and that there should be some evidence to suggest that a dividend cut was likely or imminent. If investors follow their companies closely, they may be able to protect their investments from a dividend cut in advance.

Unlike other companies that are outside of the crisis theme which have recovered from their lows of the financial crisis and which many have proceeded to set new highs (including many found within the DG50 sample), those companies linked to theme have generally not yet recovered fully. Looking at the SPDR Select Sector Financial ETF (NYSEARCA:XLF) as a proxy shows that the financial sector continues to lag behind the market or the S&P 500 .

In this series, only 8 companies in the sample have had their stock prices recover to their previous all-time high. Five companies' share prices have continued lower. All others are somewhere in the middle. Furthermore, when considering the difference in total returns of the sample vs. the DG50 sample, it reinforces the point that dividend cuts have a negative impact on total returns.

WHAT WILL I DO?

Based on the findings of this analysis, I believe the proper course of action would be to sell the companies that cut their dividend as soon as possible. There are several reasons for this. It would be near impossible to predict which ones would ever recover. Furthermore, the amount of time required even for the companies in the sample that did recover, it is possible to recover the lost dividend income and capital from an expected sell-off by investing in another company whose dividend will continue to grow over that same period. My other reasons for selling include the amount of income that is lost on average. The average dividend cut was near 50%, which makes a considerable impact in income. In addition, there is no guarantee that the dividend will return to where it once was and in the case of this sample, so few companies have returned the dividend to the previous payout.

I would hold onto the company if their dividend is minimally cut say by about 5% or less such as was the case with AZN. It does not appear as if foreign companies are sold off by investors nearly as deeply compared to US companies when the dividend is cut. Share prices in AZN shrugged off the dividend cut and continued to climb higher in the subsequent weeks.

For the moment, I would not invest in a company after they have cut their dividend in the hopes of a strong rebound. The main reason on my part is a lack of skill, knowledge and experience to know which companies are in serious danger and cut their dividend in an attempt to keep the sinking ship up a little longer or a company that needs the money to effectively turn the ship around and get out of the storm.

CONCLUSION

When I started this analysis, I knew that the sample data had some considerable weaknesses however I knew of no other sample to work with at the time. Seeking Alpha's contributor Seductive Dividend Stocks has provided me with a spreadsheet that does contain companies prior to 2008 who met the criteria found on the CCC list. This list would provide a much better sample to do this analysis and would likely change some of the findings that this series has presented. Therefore I reiterate that the findings from this series should be taken as exploratory and not be generalized beyond this sample.

It is most important to have a plan in place to act according to logic and reasoning rather than emotion when faced with such an event as a dividend cut. It is more important to know the companies that are found within an investor's portfolio and to read the companies report. An investor should have an understanding of the financial statements issued by the company so that they may know whether the dividend is likely to continue and be increased.

A dividend cut is not the end of the world but it can make that day and possibly that week feel really crummy. There are some ways to profit from companies that cut their dividends using the contrarian view of buying these companies however the key word needed here is patience. Although some returns are huge, it takes more years than some investors are possibly willing to wait.

My goal here in this series was to present information that would direct my choice in buying more, holding or selling a company that has cut its dividend. The information here I feel has been useful and has helped to actually provide a foundation for why, in my view, a dividend cutting company should be sold. My hope is that you have also found this series to be useful.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.