Corporate actions
Dividend cut
A company reducing or suspending its dividend.
How it works
Boards resist cutting because it signals difficulty and because income investors sell on the news. When a cut comes it is usually late and larger than expected.
The share price typically falls on the announcement, so the income and the capital are lost together.
Where it misleads people
Holding a high-yielding share through deterioration in the hope of collecting income frequently ends with both the dividend and a large part of the capital gone.
Related terms
- Dividend yieldAnnual dividends per share as a percentage of the share price.
- Payout ratioThe share of earnings a company pays out as dividends rather than reinvesting.
- Dividend coverHow many times over a company’s earnings could pay its dividend.
- Value trapA share that looks cheap on the numbers and stays cheap because the business is deteriorating.
Mentioned in
More in Corporate actions
- Dividend reinvestment
- Dilution
- Earnings announcement
- Delisting
- Earnings revision
- Corporate action
- Earnings surprise
- Consensus estimate
All 26 Corporate actions terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.