Mundy: The 'robust relationship' between dividend cuts and future stock outperformance

Manager of Investec UK Special Sits fund

Hot on the heels of my last monthly commentary covering dividend cuts came an excellent update from Morgan Stanley analysing the performance of stocks post a dividend cut.

Across the universe of European stocks on which Morgan Stanley conducted their analysis, they found a payout ratio close to its high over almost a 20-year period. And perhaps, not surprisingly, dividend cuts have therefore picked up appreciably over the past few months. The percentage of companies where normalised 12-month dividend-per-share estimates have been cut in the past three months is at a recent high, and close to 2011 levels. Subsequent outperformance So how have stocks which have cut their dividends subsequently performed? On Morgan Stanley's numbers, the answer is 'rathe...