U.S. News & World Report | Clemens Kownatski Shares Expertise on What a Dividend Cut Means to an Investor's Portfolio
A dividend cut can leave a significant impact on one’s portfolio’s income and potential retirement fund. U.S. News & World Report asked finance planners and experts about what you need to know about why a dividend cut happens and how to manage a portfolio when it does. Clemens Kownatzki, assistant professor of finance, shares exactly how a reduction in dividend payouts affect an investor’s portfolio and which stocks may be suitable dividend replacements. When there's widespread market volatility with hints of a pending recession, turning towards defensive stocks for dividend could be the best option for investors. “Consumer staples and utilities, for example, tend to do better during times of economic crisis. In the current situation, the essential businesses and consumer staples should do well enough and may continue paying the same dividends. It's possible that some companies may boost dividend payouts to attract investors and demonstrate confidence to the markets. The biggest potential for dividend cuts to become problematic is when they're persistent, or if you're actively relying on dividends for retirement income."
Due to the four-decade downward trend in interest rates, yields haven't been attractive to provide a source of income. Many older investors have relied heavily on dividend stocks for part of their income but with the current market, dividend cuts could expose those investors to more risk. When companies institute a dividend cut, investors may begin rethinking where dividend stocks fit in their portfolio. Clemens points out, instead of investors looking at the conditions that prompted a dividend cut, investors could use this as an opportunity to scoop up stocks at a discount. Read more.