Reitmans

I had always liked Reitmans (TSX-RET.A) stock because they had a growing dividend and low debt. I do not mind companies that are family own. However, I had never bought this stock, until just recently. I had not bought this stock because you cannot own all the good companies on the TSX, and I owned a number of retail stocks.

I bought some recently because the company had fallen on hard times and was very cheap. I knew that this was a risk. With a family owned stock company, the family is usually quite motivated to do a good job. When I bought the stock, I realized that the dividend was at risk.

When I read that the company could no longer cover the dividends with earnings, I hoped that they would cut the dividend. I know most dividend investors do not feel that way, but I do. It is the prudent thing to do. The company did do the prudent thing and they cut the annual dividend from $0.80 to $0.20.

The thing is if companies maintain a dividend that they cannot afford, that is to go into debt to keep up the dividend, it makes recovery harder. This is not the prudent way forward for a company in financial difficulties. In the longer term, the company will be better off to have cut dividends when they cannot cover them properly with earnings.

On the other hand, my son has own stock in this company for some time. He was angry when the dividend was cut. He thinks companies should do everything in their power to maintain their dividends while they mend the company's finances. We have been arguing about whether this was a prudent move on Reitmans part or not. I realize that other investors do not feel like I do as companies that cut dividends have big falls in their stock price.

On my other blog I am today writing about FirstService Corp (TSX-FSV, NASDAQ-FSRV)...continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.