4 reasons to avoid dividend-paying stocks | Smart change: personal finance
Other epic dividend cuts include General Motors” suspension of the dividend in 2008 and Citigroupsuspension from in 2009.
4. Share prices are responsive to dividend policy
Investors don’t like dividend cuts. If a company makes a dividend announcement that investors find disappointing, the stock price will reflect negative sentiment. When GE cut its dividend in 2018, the stock price fell 34% from about $ 78 to $ 51.54 in six weeks. As a result, shareholders had to absorb two negative consequences: loss of income and loss of value.
Reliable, but no guarantees
Dividend-paying stocks may not be right for you if you have a long time to invest and a good appetite for risk. The tax implications of dividend-paying stocks may also give you pause. While most dividends are taxed at the lower capital gains rate, any taxation compares unfavorably to unrealized gains on your buy and hold shares – which are not taxed at all.
Finally, you might not like the basic value proposition of dividend-paying stocks. Dividend payers promise reliability and resilience in return for modest growth, but no action can guarantee the dividend or modest growth will continue indefinitely. And when a dividend-paying stock weakens, the consequences for shareholders can be serious.
Since you face a risk of loss with any investment in stocks, you may prefer a little more risk in exchange for higher growth potential. If you’ve got the nerves and the time to weather some volatility, growth-oriented stocks have a brighter future than many dividend payers.