Income investors are a shy bunch. If a company looks like it’s not going to provide investors with the same (or a growing) level of income, they’ll leave. When that happens, a price drop occurs, sometimes creating a value opportunity.
While investors may not want to stay in a company that’s cut their dividend, sometimes buying a company after it cuts its dividend makes sense.
The lower price paid may offset a decline in yield. That looks to be the case with Dominion Energy (D), a utility that recently shed its payout by about one-third. That led to a drop in shares, which now makes the price look attractive. And, with a 3.4 percent dividend yield, investors who buy after the drop are likely to see steady gains, and possible raised dividends in the future as the company’s earnings warrant.
- This Industry is Exploding Faster Than It Has in 15 Years
1,700 people are moving to Central Florida every week.
And the numbers are only increasing as more and more people are banking the end of the pandemic drawing near.
And one company, which just received critical approval to list on a prestigious public exchange, could be on the verge of going on a huge run.
Action to take: For defensive investors, utility stocks are a solid buy, which often keeps the prices high and yields somewhat low. 3.4 percent is a good starting rate for a utility, and with shares off nearly 20 percent from their highs, investors could beat the utility sector as a whole with Dominion going forward.
For traders, the post-dividend cut selloff will likely lead to a partial recovery in shares. The April 2021 $75 calls are just $0.50 out-of-the-money. Trading at a price of $3.60, traders can likely nab mid-double-digit gains—a great return for an options trade on a utility stock in the span of a few months.