The declaration of first quarter earnings is over. Like everybody else I was interested in updates from our banks. I was expecting another round huge loses and write downs, and downsizing. Fortunately or unfortunately, depending upon whether you believe the results, that was not the case. Most of the major banks showed profitability. I have reserved this argument for later. I was intrigued by the comments coming out of the banking CEOs. The CEOs of all major banks, viz., Bank of America, Citigroup, JP Morgan, Goldman Sachs, Well Fargo, BB&T (and may be more) have criticized governments heavy handedness and continued interference in the way these esteemed folks run their banks. This criticism was directed particularly at TARP program in which these banks took money from.
When government instituted the TARP program, these same bank CEOs were happy to take liquid capital to shore up their balance sheet. These CEOs were happy to take practically zero interest money from government. At that point in time, when panic set in (if we can call it?): continue reading rest of the article….
Two of my fellow bloggers (D4L and DGI) on The DIV-Net have presented their perspective on how to deal with a given company stocks when it decides to cut of freeze the common shareholder dividends. You can read their viewpoints at these links (D4L at Article1, DGI at Article1, Article2, and Article3). Both the bloggers have presented very compelling arguments supported by relevant data set. It would be hard to argue with their observations and conclusions. Here I am discussing my approach on how I dealt with dividend cuts and freeze in my portfolio.
Since year 2005 in my dividend growth portfolio, I had owned BAC, WFC, C, WL, and GE. I will not use GE in this discussion because I am focusing on financial sector. By early 2007 I had reached my limit (10% maximum) of asset allocation in terms of my actual capital allocated. Prior to peak during Oct 2007, my financial sector allocation became in excess of 14%. This was due to the increase in value. Even though I became over allocated in financial sector, I did not take any action. And that was a mistake. I should have used re-balancing (or stopped automatic dividend re-investment in same stock).
My primary reason for investing in these stocks was dividend growth (and secondary being value). Now year 2008 brought dividend cuts in all four financial stocks viz. BAC, WFC, C, and WL. The value of the share price started to plunge and I started to incur paper loses. I had to taken action of reducing my risk and cut my losses. continue reading rest of the article….
In one of my earlier posts, I had discussed how smaller ones gets ignored, or gets buried under the media onslaughts, or perhaps they do not have the oomph! Dividend cuts by financial institutions (BAC, C, WFC, etc.) and corporations that supposedly represent American economy (GE, GM, PFE, etc) have been in headlines. In fact business media have been so focused on them that speculations with various scenarios start well before the announcement of dividend suspensions or reductions. In addition, business media has also given a wide coverage to Standard and Poor’s projection that cumulative dividends from corporations in S&P500 index will reduce by 13.3% for year 2009. In this environment it is likely for individual investors to get distracted and flustered by the dividend cuts. However, before we do that, let us look at current dividend situation in historical perspective. continue reading rest of the article….