Dividend stocks have become popular partially due to the fact
that they are viewed as safe investments. Unfortunately in
investing, there is always some risk involved.
Although many investors have been very successful with dividend
stocks, others have lost money when share prices drop or dividends
are cut. Since dividends are not guaranteed, if a company is
experiencing problems, they often reduce or even completely suspend
dividends. Below are seven former big-time dividend players that
imploded in recent years, sucking down billions of dollars in
shareholder value along with them.
1. General Motors
The General Motors Company (
) is an American multinational corporation founded in 1908, and the
largest automaker in the U.S. The Detroit-based company designs,
builds, and manufactures cars, trucks, and auto parts throughout
the world. GM also offers auto loans in its financial services
GM paid reliable, consistent dividends for several decades
during its glory days. In the mid-200s, however, the company hit a
major snag. With a dividend yield rising over 10%, the stock was
seemingly still an attractive investment. After all, it had
reliably paid a 50 cent dividend each quarter from 1997 to 2005.
The reason for such a high yield? A sharply dropping share price.
GM shares plunged from over $60 in early 2003 to under $20 in early
Unfortunately, all too many investors didn't realize that
eye-popping yield was simply too good to be true. In February 2006,
GM cut their dividend in half to a 25 cent per share. On May 15,
2008, the company paid its last 25 cent dividend. GM promptly
suspended its dividend altogether, sold $4 to $7 billion in assets,
and cut 20% of their salary costs to save billions of dollars. And
still, some investors held on.
Then came the final blow. In 2009, GM declared bankruptcy. The
stock price went to zero. Thankfully for its employees, the company
was subsequently bailed out by the U.S. government. GM later became
public once again in October 2011 on the NYSE, but has yet to
re-initiate a dividend payout.
Eastman Kodak is a photographic and imaging equipment company
that was founded in 1989. The Rochester, NY-based firm is best
known for its photographic film products. The company was very well
positioned in the industry during the 1970′s, but began to struggle
in the 1990′s when the print photo industry began to crumble.
Kodak paid a quarterly dividend for several decades, hitting its
prime in 1988 with a quarterly payout of 50 cents per share. The
dividend amount later declined to 40 cents in 1994, but went up by
4 cents to 44 cents in 1997. For the next six years until 2003, the
company paid consistent 44 cent dividends every quarter with an
average of a 6.7% dividend yield.
In October 2003, the company cut its dividends by 43% to 25
cents quarterly, decreasing the dividend yield to 1.9%. Kodak
reported that the drastic cut in dividends was due to a new company
strategy which included increased investment in newer technology.
The news brought Kodak's stock down 18% in a single day.
Finally, in April 2009, Kodak announced that it would no longer
pay dividends on its stock as a result of declining sales. In
January 2012, the company, which had been struggling for years,
3. J.C. Penney
J.C. Penney (
), which was formally known as Penny's, is a department store chain
founded in 1902. The Plano, TX-based company operates over 1,100
stores, and previously maintained a catalog business along with
many discount outlets.
The company paid dependable quarterly dividends that reached
above 50 cents in 1996. For three years until 1999, JCP paid
dividends between 52 cents and 55 cents every quarter. In 2000, JCP
cut dividends by 53% to just $1.03 annually in order to raise money
to invest in its stores. The following year, dividends were cut
again, this time by 62%, to 12.5 cents per share.
That payout level remained until 2007, when JCP faked out
investors by actually raising its payout to 20 cents. It continued
to pay 20 cents quarterly for the next five years. Then on May 15,
2012, J.C. Penney suspended its dividend program as part of a
larger business transformation. The stock dropped some 42% over the
next few months as droves of dividend investors quickly headed for
4. Barnes & Noble
Barnes & Noble (
) was founded in 1917, and is the largest book retailer in the U.S.
The New York-based company operates both book stores and college
book stores, and is located in all 50 states. In addition to books,
the retail chain also offers magazines, newspapers, DVDs, graphic
novels, gifts, games, and music.
BKS paid a quarterly 15 cent dividend from 2005 to 2008. In
2008, the company increased their dividend payment amount by 40% to
25 cents, averaging a 5% dividend yield at the time. After major
competitor Borders declared bankruptcy, BKS suspended their
dividend payments in February 2011 in order to save money to invest
in digital strategies so that they would be better positioned to
compete with leading competitor Amazon.com. The stock plunged some
69% in the two months following its dividend suspension.
5. Washington Mutual
Washington Mutual, which was also known as WaMu, was a savings
bank holding company which was founded in 1889. The Seattle based
company's goal was to be the "Wal-Mart of Banking." With this goal,
the company's target market was lower and middle class consumers
that were not able to receive financing from other banks since they
were considered too risky.
WaMu was at one time the largest savings and loan association in
the U.S., building its fortune on the backs of subprime loans. Over
the years, it steadily grew its dividend to 56 cents per share by
the end of 2007, yielding over 5% at the time. But in December on
that year, the bank, facing the implosion of the housing market and
utter annihilation of its subprime mortgages, slashed its dividend
to 15 cents.
Just over a year later, the company cut their dividend again to
one penny a quarter. On September 26, 2008, WaMu declared
bankruptcy, and JP Morgan acquired what was left of the company's
) is a financial services corporation. The New York based company
is the largest financial services company in the world, operating
in over 140 countries. Starting with 9 cents a share in 1998, the
company paid increasing dividends every quarter for several years.
By May 2003, the compan''s dividend had increased to 23 cents, and
then increased again three months later to 35 cents. In 2007,
dividend payments for Citigroup were at an all-time high of 54
cents. At this time, the subprime mortgage crisis was becoming more
and more of a problem, resulting in the company cutting its
dividends by 40% in the beginning of 2008 to 32 cents.
In October 2008, the dividends were sliced again by 50% to 16
cents, and then to just 1 cent in January 2009. The company chose
not to pay a dividend for the next two and a half years. With its
stock sitting under $5 per share in May 2011, Citi pulled some real
financial chicanery, executing an almost unheard-of 1-for-10
reverse stock split. That move pumped its share price up to $45 per
share, and it resumed a one penny per share dividend payout, which
continues to this day.
7. Bank of America
Bank of America(
) was founded in 1998, and is the second largest financial services
company in the U.S. The Charlotte, NC-based company serves
consumers, small and middle market businesses, corporations, and
governments. The company focuses on banking, investing, and asset
Since the 1980′s Bank of America paid regular quarterly
dividends which increased a couple cents every year, seeing its
peak in 2007 and 2008 with a dividend of 64 cents a quarter. When
the financial industry began to suffer and the company started
declining in profit, BAC cut its dividend in December 2008 in half
to 32 cents, and then down to 1 cent the following quarter. Bank of
America currently maintains that very same 1 cent per share
The Bottom Line
The dividend stock world is littered with its fair share of
recent disasters. The factors that led to the downturn of once
mighty dividend payers are vary greatly. Some companies simply
failed to change with the times. Others have incompetent management
to blame. Still others took on massive risks that eventually came
back to bite them. Most of these companies exhibited at least one
of the following signs before their massive dividend cuts, however:
a sharply falling share price, or a lack of dividend raises over a
long period of time. If investors do their homework and heed these
warning signs, they should be able to avoid dividend blow-ups like
the ones listed above.
Created by Dividend.com