The Pain of Dividend Cuts

I learnt a valuable lesson this week on the cyclicle nature of some businesses - and how they should not form a large part of any long term equity income portfolio.

After Taylor Wimpey's confirmation that they will not pay an interim dividend this year, Barratt Developments (another one of the householders in the portfolio) confirmed they will not be paying a final dividend this year and are keeping future dividend payments under review.

This does not mean they are cancelling the dividend per se - they still paid a 12.2p interim dividend, which by default will now be the total for the year. This will hit the income target for the portfolio not insignificently this year.

Long term the housebuilders will recover. The shares hold recovery potential and they have fallen too far to sell anyway. But that is not the point - they should not be in an income oriented portfolio such as mine in this scenario.

I will hold them for the eventual recovery - but this means more than ever the hunt is on to find companies less cyclical where both dividend growth and security of payment are key.

This may mean looking outside the UK, but the need for secuirty is paramount. As an aside, a dividend payment from Marks and Spencer is due in the account today - which will provide another small step to having the funds for another purchase - and whatever that turns out to be it won't be a housebuilder!

The Dividend Seeker