Our recent post Relative Strength Dividend Investing highlighted a couple of key ways that relative strength screens have the potential to improve the experience of dividend investors. A “land of agony” for dividend investors is those holdings that cut their dividends. As pointed out in the article, companies that cut their dividends overwhelmingly had negative relative strength.
Today, we see another example of that with Barrick Gold:
The world’s largest gold miner has now written off nearly $13-billion in 2013.
Because of the latest charge, Barrick lost $8.6-billion during the second quarter. Stripping out the one-time item, the company made $663-million, or 66 cents per share, down from $821-million, or 82 cents per share in the same period last year.
To conserve cash, Barrick has decided to slash its dividend to 5 cents per share each quarter , down from 20 cents previously. The cut will help the company save $600-million annually.
And just like that, Barrick Gold has slashed its dividend (which was 4.66%) by 75%. However, the technical case for Barrick Gold has been weak for some time.
Source: Yahoo! Finance, 8/1/12 - 7/31/13, Price return only
Dorsey Wright also ranks all stocks by their “technical attributes” on a scale of 0-5 (5 being the strongest). Four of the attributes are based on relative strength and one is based on trend. The technical attribute history of Barrick Gold (ABX) has also been weak for years:
Source: Dorsey Wright
As Josh Peters of Morningstar recently pointed out, “Investing—even when focused on dividends—is never just about the dividends. Total return, which reflects both income and capital appreciation, is the bottom line for any investment strategy.” Relative strength has the potential to be an effective defense against dividend cutters.
Dorsey Wright manages Relative Strength Dividend UITs for First Trust. Click here for more information.
Past performance is no guarantee of future returns. A list of all holdings for the trailing 12 months is available upon request.
Very interesting