Sometimes investors forget that dividends are funded by actual cash flows.
Consider General Electric (GE), whose outsized yield tempted investors to mistakenly buy shares in this “blue chip” as disaster was unfolding. The stock losses started well before the actual dividend cut and continued on from there:
(Accounting) Imagination at Work
This focus on yield rather than cash happens too often. It’s what prompted me to warn readers about the sky-high yield of Frontier Communications (FTR) a year ahead of its 2017 cut:
A Broken Telecom (and Broken Dividend)