You heard that right. Dividend cuts are not the end of the world.
The two words most investors never want to hear is “dividend cut.”
Especially, investors focused on building a stream of passive income.
But dividend cuts are part of the journey to financial freedom when you are a dividend growth investor.
Cuts can de disheartening, especially when you are just starting out.
They will feel like a punch to the gut.
But it is all part of the game.
We have all experienced cuts over the years. Sometimes really big cuts.
My Experience
I have had my share of dividend cuts over the years.
Amongst my larger cuts was AT&T in March 2022. That cut reduced my dividend income by $436.86.
Of course, at least with the T cut, they gave a year’s warning in advanced and I had time to prepare for it.
Contrary to the noise you may hear, nobody can predict when or if a company will cut their dividend with 100% accuracy.
Back in July 2020, I had a dividend cut from WFC, which was pandemic related. That cut reduced my dividend income $162.31.
In August 2023, I had a huge dividend cut from MPW which reduced my dividend income by $504.00.
If there is one word to sum up these cuts, it is: ouch.
There are more, but just those 3 add up to over $1,000 in dividend income lost at one time or another in the short term.
Diversification and Consistency
In my experience, the two best ways to lessen the blow of a dividend cut is through diversification and consistency.
When you have a diversified portfolio and one company cuts their dividend, while ten other companies raise their dividend, you will lessen, negate, or even surpass the amount cut.
While it sucks to have a cut in the first place, dividend raises from other companies can make up for it.
Another important aspect is consistency.
Even after all those dividend cuts, I kept investing! In fact, my investing has only increased since then.
Despite the cuts over the years, I ending each year with higher and higher dividend income.
Sometimes it is ten steps forward and one step back.
While these cuts suck, over the long-term they all but disappear as growth overtakes them.
Conclusion
Dividend cuts are not the end of the world.
I have been tracking my dividend income for 10 years now. Each year is a new record breaker!
As of this post, my portfolio is set to generate $15,014 in dividend income over the next 12 months.
Thus, I am currently making over $1,200 in passive income each month while I sleep.
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So, what do you think of this post? What was your worst dividend cut? Let me know in the comments below!
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