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How to Avoid the Great Dividend Disaster

April 07, 2009 – by Richard Band

The housing collapse combined with the new credit squeeze is about to trigger a dividend-cutting frenzy throughout all sectors.

The big shock will hit when second-quarter earnings are announced, and if you haven’t repositioned your assets by then, your dreams of a comfortable retirement will turn into a nightmare.

If you want to protect yourself and profit from the dividend cuts headed your way, you must take action now — because the slide has already begun.

Here’s what I mean:

  • 2009 is already on track to be a record year for dividend cuts, with over 100 companies in the S&P 500 either cutting or killing their dividends in the last twelve months.

  • It’s only going to get worse, now that relatively healthy financial giant J.P. Morgan cut its dividend by 87%. And General Electric cut its dividend by 68%, the first cut since The Great Depression.

  • Many big-name non financials that looked solid on paper are now following suit. Ingersoll Rand has slashed their dividends by 61%, leaving their investors in the lurch. Our research shows more dividend cuts are on the way.

The bottom line is this: Bad debt, the continuing credit squeeze and falling revenues in every industry have created a corporate cash crunch that’s now spreading beyond the financial sector. The result has been to put pressure on struggling companies to slash dividends or face the consequences. (Make your cash work for you again — details here.)

The chain reaction will inevitably undermine the prices of hundreds of cash-paying dividend stocks… blindsiding investors who’ve been lured in by higher-yielding shares.

If you don’t sell these stocks now, you could find yourself living on skid row as your income collapses and with it your future wealth.

NEXT: Big-Name Stocks to Sell Now

Big-Name Stocks to Sell Now

Normally, many top-quality financials, REITs, and utilities hold their ground in the toughest of downturns. However, the credit squeeze and a deepening recession will turn these safe havens into black holes.

If you doubt what I say, you need only look at the balance sheets of the companies you own. There you’ll see with your own eyes if a company is draining cash from operations and if it can keep up with the dividend payment.

And if a company has any long-term debt coming due, watch out!

Together, those two factors will form a one-two knockout punch that could set back your savings for years.

Your best move now is to sell the big-name stocks that I’ve identified as headed for a fall:

  • Baidu (BIDU)
  • Motorola (MOT)
  • Boston Scientific (BSX)
  • Celgene (CELG)
  • Visa (V)

Get details on 15 more big-name stocks to sell now here.

Best Stocks to Buy Now

Your second move is to buy companies that are generating lots of cash — and sharing their cash with shareholders in the form of juicy dividends.

I’m speaking of cash-generating machines like:

  • IBM (IBM)
  • Sysco (SYY)
  • Procter & Gamble (PG)

Companies with long-track records of growing earnings and increasing dividends year after year; companies whose cash flow is growing; and companies that are continuing to expand in this market. (See the complete Profitable Investing Buy List here.)

As you’ll see over the next 12 months, not only will their profits rise but so will their dividends. The end result will put powerful upward pressure on their stock prices as well, as the market continues to get selective and investors flock to those with the biggest and safest rising payouts.

While many big-name dividend payers will collapse, others will not only flourish but hand their investors 20%, 30%, even 40% dividend growth over the next 12 months but also total returns of as much as 35%. That’s why it’s so important that you not only dump your dividend losers today but also add the 5 Top Income Stocks for 2009 as recommended in Richard Band’s Profitable Investing to your holdings NOW. Do this and you’ll not only survive the roller-coaster ride with your wits intact but could even come out of this dividend disaster 35% richer by this time next year. Details on how to join risk-free here.