Signs Of Dividend Cut

In Continuation of an article Don’t Just Pick Any Dividend, let
me follow up with a few signs of company who may initiate
dividend cut Once dividend payment is initiated, management
will be less inclined to cut them Certain circumstances might
force them to cut the dividend Yes, it is embarrassing But, it
may be needed to survive Business may be slow Debt payments
may be coming due Whatever it is, dividend cut generally is not
a good thing
Here are several indications that management will cut future
dividend:
Huge Loss When a company is not profitable, dividend cut
may be initiated If the loss occurred for years and no sign of
improvement for the foreseeable future, the chance is, dividend
will likely be cut
Negative Net Cash This means that the company has more
long term debt than it has cash If the firm’s negative net cash
is increasing and getting worse, the dividend cut will follow
suit
Negative Cash Flow From Operations When the company is
draining cash operating its business, there is no reason it
should keep the dividend payment The cash can be used for other
purposes such as capital expenditure or investing in long term
asset to expand its business
Long Term Debt coming due If a big portion of the
company’s long term debt is coming due, it needs to conserve
cash Even if the firm cannot repay it on time, lenders want to
see an effort by the company to conserve cash To please
lenders, the company needs to reduce dividend payment and
request an extension for the loan
If a company has one of these signs, they may not cut their
dividend anytime soon But if a company has all these signs,
there is a big chance that dividend cut is the next logical
stop What company currently fit this description? General
Motors Corporation is one It has a huge loss of $ 381 Billion
loss for the first nine months of 2005 Furthermore, its balance
sheet is not stellar It has a huge negative net cash ($ 31
Billion) and cash flow from operation is negative as well I am
not sure when GM’s long term debt is coming due If a huge
portion of it comes due, dividend cut will be initiated if its
business does not turn around

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