Originally Posted by
Snoopy
Yes dividends *can* be cut in bad times Alan. But I have found that even in bad times directors are reluctant to cut dividends. Often they will keep paying dividends, even at a rate above current profits, to keep faith with shareholders in anticipation of better times. That means company dividend volatility is much less than company earnings volatility.
Dividend volatility can be further reduced by having a a spread of high dividend paying investments. Earnings do go up and down but generally not at the same time for all companies. You could for example buy shares in both a high yielding exporter and a high yielding importer. I never try to predict which way the dollar will move. But such a strategy means that one of your two companies will be helped whichever way the dollar moves!
I do like utility type companies too because generally their earnings volatility is much less than the market in general. Food companies, while not strictly utilities, do show similar characteristics because people need to eat and drink in both good and bad times.
The problem with a strategy like this is that if you suddenly need to call on your capital you might have to sell your shares when the market is down. For this reason I do run a fixed interest portfolio, which is materially smaller than my equities exposure, as well. This portfolio is made entirely of bank term deposits. I have six of these all of which are invested for a six month term, but with staggered maturity dates. That means that every month I know that one of my term deposits will be maturing. This way I preserve monthly access to cash , should something come up, while retaining the benefits of the higher interest rates available on medium term fixed interest investments. It all works for me, sans bonds. YMMV.
SNOOPY