Investing Topics: Dividend Cuts

Four of the holdings in our Endangered Dividends List still have potential upside, but a questionable acquisition by one propane distributor rates a sell call.

Exelon Corp’s (NYSE: EXC) $6.9 billion all-cash takeover offer for Pepco Holdings (NYSE: POM) has gotten a mixed reception from investors, but the deal pushes the acquirer closer to resuming dividend growth.

Half a dozen European utilities and telecoms cut dividends in March. The happy count from April: Zero. Several companies this month even graduated from the Endangered Dividends List.

The aftermath of a dividend cut is always an emotional time, especially for investors who own the stock in question. But if you can keep a level head and evaluate the company’s proposed turnaround effort, you can find deep-value plays poised for big returns—a rarity in a five-year-old bull market.

This week, FirstEnergy Corp (NYSE: FE) announced the first electric utility dividend cut for 2014. Fortunately, it’s likely to be the last as well.

Nothing destroys shareholder value like a dividend cut. Investors should steer clear of these names.

No group of dividend-paying stocks has been more profitably shorted the past few years than high yield telecoms. Short sellers make their money when stock prices fall. And sector companies have not only cut dividends eight times since 2009, but we’ve seen a pair of bankruptcies as well.

24.

That’s how many stocks we track at Energy & Income Advisor and Conrad’s Utility Investor that yield more than 10 percent.