Why? Take General Motors. In early February, 2006, the company announced that it was cutting its annual dividend more than fifty percent (50%)! The dividend yield prior to the announcement was 8%+. If you were living on a fixed income and depended upon that cash to pay your living expenses, losing half of your annual income would be devestating. Yet, had you focused on the operating performance of GM, you would have steered clear of the stock. Long term, you want to make sure that the dividend payout ratio isn't grossly exceeding reported net income as that situation isn't sustainable.
For more information, check out our Ultimate Guide to Dividends and Dividend Investing.
