Devastating News For Dividend Investors
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One of the things I like most about dividend investing is that it’s typically pretty boring.
It’s usually a pretty low-stress way to invest, but this week in the world of dividend investing was most definitely a departure from the norm, and has been more high-octane that most with nothing but bad news. As a brief recap, here’s everything that happened:
First, Leggett and Platt (LEG), a dividend king, announced an 89% dividend cut, chopping it down from $0.46/share to $0.05/share. Truth be told, this actually wasn’t all that surprising. I made a video a few weeks ago discussing the potential of this happening.
Following suit, another dividend king, 3M (MMM), also announced a cut following their healthcare spin-off. This move, too, was unsurprising to many, and the possibility of this happening was one of the reasons I sold out of 3M some time ago.
Thankfully, those were the only dividend cuts for the week, but the onslaught of bad news didn't end there.
With earnings season in full swing, companies like my beloved Starbucks (SBUX) and CVS Health (CVS) missed on both their top and bottom-line expectations by no small margin, resulting in gut-wrenching share price declines on Wednesday (5/01)—15.9% and 16.8% respectively.
You can read about the Starbucks earnings here and the CVS earnings here.
All in all, it’s been a pretty devastating week on the market. Times like these tend to test your mettle as an investor, and likely have you questioning how best to proceed.
Should you sell? Should you buy more? In a state of paralysis, should you just hold on and do nothing? These are not easy questions to answer, and it will vary with each situation, but in general, I’ll say this:
In either case — when dealing with share price declines or dividend cuts — the last thing you want to do is let your initial emotions get the best of you and panic sell.
Before you do anything, slow down and identify what’s going on, why it’s happening, and whether or not that changes your long-term beliefs about the company (with extra emphasis on “long-term”).
This process might take you a day, or a couple days, and that’s fine. Giving yourself that time will prevent you from making a rash decision, and will allow you to collect your thoughts.
In the case of Starbucks, which is the only company I own out of the bunch, this is how I’m trying to go about things.
While it’s hard to find a bright side in their recent earnings announcement, at the end of the day, I don’t think one bad quarter is enough to sell out of a business that has otherwise been a solid grower and a strong performer. Even if the coming quarters turn out to be a bumpy ride (which is to be expected considering that some of their poor performance is due to macroeconomic factors), I think the same will still hold true.
I still feel confident that the company will be better five years from now than it is today, and so I’m looking at this as an opportunity to buy more shares at a greater discount (and with a higher yield) than last week. Whether this is the right or wrong move, only time will tell, and I’m certainly not impervious to being proven wrong.
As investors (and humans), all we can do is make the best possible decisions for the future with the information, experience, and brain power we have available here in the present. If the facts change, then we can (and should) adjust accordingly.
With that said, I want to hear from you. I know that many of you own at least one of these companies—3M, Leggett and Platt, CVS, and Starbucks—so what are doing? Are you selling your positions, buying more, or just holding? Write to me here and let me know.
And a big thank you to all of the readers who responded to last week's newsletter! You can read some of the responses down below in the "Hot Takes" section. 👇
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IN MY PORTFOLIO 📈
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ICYMI 🎥
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SINCE YOU ASKED 💬
"How do you decide in which sector to put your next investment into? Do you strive for an equal amount in each sector or is there another strategy you follow?"
- Teodor | Email Submission
Truth be told, I don't pay much attention to my sector diversification, and I don't seek out investments based on which sector they're in.
I focus more on the quality and value of each individual holding, which will vary from time-to-time based on market conditions. By doing so, my portfolio naturally stays pretty well-diversified, with my largest sector being Consumer Discretionary, making up about 23% of the total weighting (not including ETFs).
Source: getquin | My portfolio diversification by sector
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers which stocks they have their eye on for the month of May. Here are some of the responses:
Irene said: KO, O, PEP, JNJ, TSLA, ABBV
Aaron said: I'm picking up more shares of V, JNJ, MDT and NEE. I like the profitability and dividend growth in these businesses.
Lynne said: I find myself buying more MCD and JNJ this week. I believe they represent very good value at their level.
Pat said: April economic showers bring May COMMODITIES FLOWERS! Energy Transfer (ET) and Agnico Eagle Mines (AEM). These two stocks I'm watching for May.
Matt said: I’m eying both KO and O for my portfolio at $57-59 and $50-52 respectively.
Kristian said: I am definitely following this correction closer than I probably should be! I do appreciate the opportunity to pick things up on sale, and I am watching primarily JNJ, SBUX, ZTS, TXN, and AAPL (trading just $4 above its 52 week low!).
Mark said: Loaded up on SBUX over the last two weeks! And I'm still looking hard at it......I've added 45 shares to my position so far. In addition to my SBUX buys, I've added 30 shares to my HRL position, 10 shares to my BMY position, 5 shares to my BKR position, 5 shares to my SLB position, and 5 shares to my PG position. Started a position in PRU (10 shares) and will be looking to start a position in UPS.
LAST WORD 👋
In case you didn't know, I do a live stream on my YouTube channel called the Dividend Happy Hour every Friday night at 5:00 PM PST / 8:00 PM EST.
This is one of the things I look forward to the most every week. It's a really fun opportunity to hang out with everyone in the community and hash out everything that's happening in the world of dividend investing.
If you can make it, I'd love to see you in this week's live stream. I think you'd have a lot of fun! Here's the link to the stream, and in the meantime, you can catch up on the most recent stream here.
