In these hard days of covid mess it is difficult to be a true Dividend growth investor. Even high quality companies like Helmerich and Payne (HP) which was increasing their dividend for 47 consecutive years decided to cut the dividend.
As a dividend investor I was relying on the dividend aristocrat list and always defended the idea that if a company increases dividends for 50 years or more then it is very unlikely that it would cut the dividend. Although, I admitted that it can happen, I actually didn’t believe it much. Now, that it happened, the question is what to do next?
I was building my position in HP lately adding shares to reach 100 shares in this Stock. The dividend was nice and all numbers looked OK to me. I am not an overly expert in evaluating dividend stocks, so I may have missed some warnings but I still felt confident that this stock would be safe.
Then the Covid crash came and the stock plummeted. Then the oil crisis added on top of it and the stock plummeted even more. It went from $45 a share to $12 a share at some point.
And, on top of all that the company announced the dividend cut. The dividend growth investor is supposed to liquidate such position and move to a different, better company. At least, that is the theory. But if I liquidate at today’s price, I would be realizing huge loss. And I am not willing to do that.
One reason is that the metrics of the company are still good and the dividend cut is not a result of reckless leadership but to preserve cash in the difficult times like today. It can actually be perceived as a good approach from the board.
This had me to reevaluate my dividend investing strategy and line it up with my recent approach to treat my stock holdings as true asset, like a rental property I decided to buy, hold forever, and monetize it.
And that is the response to the question “what to do?”
I will keep the stocks and keep accumulating my positions despite the dividend cut, and deploy options to generate cash in lieu of the dividends. It is basically an approach described by Samir Elias in his book “Generate Thousands in Cash on your Stocks Before Buying or Selling Them” where you keep selling puts until you buy 100 shares of a stock and once you buy 100 shares you keep Selling Covered Calls until you sell the stock. Then repeat the process.
So, instead of selling a stock, I will keep it. I will keep accumulating until I reach 100 shares and then start selling covered calls. I will also track my cost basis and may reevaluate my holdings once the cost basis drops below the current stock price. Then I may decide to liquidate the position and move elsewhere or keep it. Time will show.