For yield-focused investors, perhaps nothing is scarier than a dividend cut. Investors focusing primarily on yield have typically budgeted for how much income an investment is expected to provide over time, in most cases for retirement or other income-related needs. In fact, many of the models put forward by income investors tend to factor in some sort of dividend growth rate over time.
A dividend cut, the exact opposite of dividend growth, can be devastating for investors relying on such income during retirement or for long-term growth in a Tax Free Savings Account (TFSA) or other comparable vehicle.
Looking at Altagas Ltd. (TSX:ALA), investors find a very nice yield in excess of 7%. However investors have begun looking elsewhere for value in the oil & gas industry, noting the risk with Altagas in the near and medium-term may outweigh the benefits.
With Altagas’ stock price dropping, its corresponding yield has increased to very attractive levels; however, many case studies and examples are available over the past two years of other companies operating in the oil & gas sector which have seen stock valuations decline, yields rise, and dividend cuts resulting as an inevitable procedural side-effect of too much expansion and debt accumulation in low commodity price environments.
Invest wisely, my friends.
