Pitney Bowes Inc. (NYSE:PBI) Next?
A more worrisome company to monitor on this front is Pitney Bowes. This company has been hard hit by the Internet because it is so tied to regular mail services. While management is working hard to catch up to the times by bringing out more and more Internet-based services, and trying to create services that transcend both physical delivery and online delivery, there is no question that the company has some problems.
Although Pitney Bowes has an incredibly long history of annual dividend increases, it chose not to increase its dividend at the normal time. This is supposed to give the company’s new CEO a chance to review the business, but it’s a bad sign for the dividend. While a cut doesn’t always come next, it’s easier for the a new CEO to make such a move early on in his or her tenure than to admit it is needed later. Avon Products, Inc. (NYSE:AVP) was in a similar situation before its disbursement was trimmed.
Dividend Cuts
Investors that rely on dividends have to be very careful when selecting stocks to own. Just because a company has a large dividend today, doesn’t mean it will have one tomorrow. Cliffs is a sad example of this, and one that stings badly because of the large dividend increase in 2012. To many that move would have seemed like an indication that management was dedicated to protecting the dividend and returning value to shareholders.
A company can only do that for so long while it is struggling, however, which makes watching the underlying business paramount. Nokia and Avon were both struggling before their cuts. Cliffs wasn’t performing at the top of its game. Some companies work through problems, however, others don’t. For an investor who already owns a company, it might be worth sticking it out. For a conservative investor looking at a stock with an elevated yield, it might be worth looking somewhere else.
Pitney Bowes is a good example of this today. Is it worth getting in the stock now? For conservative investors it clearly is not. Before the cut, Cliffs was also in a difficult situation, though probably not as dire. That said, the company’s decision to issue equity should probably dissuade all but the most aggressive from considering a purchase at this point.
What to Take Away
Always watch for companies that are in financially difficult situations that can’t be easily solved. Always watch for companies whose situations are worse than that of their competitors. Always watch for dividend increases that don’t happen on “schedule.” Always watch for management changes. In addition, always avoid stretching too far for yield, and always diversify broadly.
Lastly, don’t feel bad if you get caught in a dividend trap. It happens to almost everyone. Make sure, however, that you learn something from the experience.
The article Another Dividend Is Toasted originally appeared on Fool.com and is written by Reuben Gregg Brewer.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
