Dividend stocks are great for investors. Most investors use the dividends as another form of income, or have the funds reinvest back into the stock. Having these stocks are a great way to grow your money, but there is always some risk.
To start, it is important to note that dividend stocks are typically much safer and conservative than non-dividend paying growth stocks. However, when choosing a dividend stock, it is important to choose wisely. So called, “dividend disasters,” are rare, but they do happen. The good news is, these situations usually do not happen without warnings. When picking dividend stocks, it is important to ensure that the company is financial stable.
Below are three of the biggest “dividend disasters” of all time.
J C Penney Company Inc (NYSE: JCP)
It has been pretty clear over the last few years that J C Penney has seen better days. The company has been closing hundreds of stores and laying off thousands of employees. In the last twelve month, the retailer’s share price is down over 40%. In the last five years, shares of JCP are down over 80%.
It seems like J C Penney has been a bit of mess for so long that many investors may have forgotten that the company was once a reliable dividend payer. From 1987 to the late 90’s, the company was committed to increasing dividends for its shareholders. However, by the year 2000, the company had run into financial trouble and slashed its dividend by 53% to raise money for its stores. In 2001, JCP lowered its dividend again, by 62%. Over the next few years, payouts seemed to have bottomed. JCP announced an increase in 2006 from 12.5 cents to 18 cents. In 2007, the company lifted its dividend yet again from 18 cents to 20 cents per share. It held its dividend payout until 2012, when it suspended its dividend altogether.
When you hear the name Kodak, it’s pretty clear that the history of its stock price and dividend does not have a happy ending. The photography equipment company paid a solid dividend for several decades. In 1988, the company paid its highest ever quarterly dividend of 50 cents, but by the 1990’s, Kodak really began to struggle.
In 1994, the company cut its dividend from 50 cents to 40 cents. Three years later, in 1997, there was some optimism when its dividend increased to 44 cents. This higher dividend was maintained until 2003 when Kodak slashed its quarterly payout to 25
cents. It was able to pay a dividend until three years before its 2012 bankruptcy, in 2009, when the company announced its financial troubles.
Citigroup (NYSE: C)
Not all dividend disasters end in bankruptcy. In fact, there can be recovery after a dividend disaster. Take Citigroup, for example. There are several financial services companies that share a similar story to Citigroup that were all faced with the 2008/2009 financial crisis.
The company had a pretty good dividend history, and in 2007, its payout reached its all-time-high of 54 cents. However, Citi’s shareholders faced two significant dividend cuts in 2008. In the beginning of 2008, the stock lowered its dividend to 32 cents. Later that year, its dividend was cut again to 16 cents. In January 2009, Citi lowered its quarterly dividend to 1 cent.
Citi was not able to increase its dividend again until 2015, when it finally raised its payout from 1 cent to 5 cents. In 2016, Citi boosted its dividend to 16 cents.
Things are looking up for Citi, and if shareholders are lucky, this increase will continue. The stock currently has a dividend yield of about 1%.