How Investors Should Read a Dividend Cut

Quoted In:

 Published June 5, 2018

Published June 5, 2018

"Theoretically speaking, a reduction in dividends by itself does not change the return of an investment," says Joshua Escalante Troesh, founder, Purposeful Strategic Partners and a professor of business at El Camino College in Torrance, California.

"Earnings not paid out in dividends are retained by the company to help it grow," he says. "This should increase the value of the company, which would be reflected in the stock price."

So when the right occasion presents itself, less may mean more.

"If the company has a significant business opportunity and believes they can invest for a higher return, reducing the dividend so the company can make the investments could be a great benefit for the investor," Troesh says.