GE Shows What Happens When Dividend Investing Goes Wrong
A recent article in the WSJ article mentioned the risks when dividends “go wrong”. It was an interesting piece in light of what is going on with GE and the reduction of its dividend. The article is accessible through https://www.wsj.com/articles/ge-shows-what-happens-when-dividend-investing-goes-wrong-1541095746 if you are interested in reading more on this topic.
Although we cannot prevent market or dividend volatility from occurring, we definitely do remain focused on taking a consistent and disciplined approach when managing our strategy. An approach that helps you understand and be more confident that you will be “OK” in all market outcomes.
Our approach remains consistent that our equity managers look for companies with a solid balance sheet, strong free cash flow and the ability to continue to raise dividends for shareholders. These companies are proven to have financial strength and have been doing well particularly in the volatile markets. Although GE was paying an attractive dividend, it was also distributing more to shareholders in the form of dividends than the net income it was earning. In our manager’s view, the significant drop of free cash flow from GE’s financial statement is one reason why it would not pass our manager’s selection criteria, found below, and which we strictly adhere to:
- Companies that pay and raise regular dividends tend to be in better financial health and produce sustained earnings and revenue growth.
- Dividends help identify well-managed companies; every dividend declaration represents a promise by management and a vote of confidence by the board of directors in the company’s leadership.
- Companies that consistently raise their dividend payouts also raise the bar on their own performance expectations.
- Shares of dividend-paying companies possess built-in value that makes them generally more resilient in down markets, with solid appreciation potential during earnings-driven market upturns — with less price volatility.
As always, we are here to answer any questions and thank you for allowing us to help you and your family in navigating the opportunities where life meets wealth.
November 6, 2018
Disclosure:
Information provided should be considered based on your personal needs to accomplish your goals. At EisnerAmper, we will be happy to discuss with you any questions and how these principals can be applied to meeting your financial plan. Feel free to contact Marc Scudillo, Managing Partner of EisnerAmper Wealth Management & Corporate Benefits, LLC; 908-429-0025 or email at mscudillo@eawmcb.com.
EisnerAmper Wealth Management & Corporate Benefits, LLC is a registered investment advisor.
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