Learn the stock market › Dividends › Lesson 4 of 5
When are dividends cut?
How often it happened
We went through US companies year by year from 2014 to 2024 and compared each year's dividends with the next year's. Lower means more than 2% lower.
| Dividend yield the year before | Lower dividend the next year | Cases |
|---|---|---|
| below 5% | 6% | 1,294 |
| 5–8% | 26% | 70 |
| 8% or more | 70% | 20 |
The higher the yield, the more often the dividend was lower the next year. A high yield often means the price has already fallen, and prices often fall because profit is expected to shrink. How the yield is calculated is in Dividend yield.
Only 20 cases had a yield of 8% or more, because few large US companies pay that much. The Nordic figures for the same test are 17%, 33% and 55%, on more cases.
Why companies cut
The board decides each dividend anew, usually every quarter, and nothing obliges it to keep paying. The most common reason for a cut is a fall in profit. Others are a large investment, buying another company, high debt or an uncertain time.
A special dividend is a case of its own. It is paid when the company has cash to spare, and the next year only the regular dividend comes. That is why the table leaves out years when the dividend jumped to at least 1.5 times the year before.
2020
None of the 14 US companies in the dividend yield table skipped a year since 2016, 2020 included.
What the table does not say
The figures cover companies still listed today. Companies that went bankrupt or were taken over are not in them, and cuts were probably more common among those. So the rates are more likely too low than too high.
The table says how often it happened, not what any one company will do. How prices usually move around the ex-dividend date is in the dividend study.
Test yourself
A stock has fallen from $100 to $60, and last year's dividend was $6. The yield is now 10%. What does the history say?