Our Passive Income Takes a Punch to the Mouth

Passive IncomeFormer heavyweight boxing champion Mike Tyson was famously quoted as saying “everyone has a plan until they get punched in the mouth.”

While less than two months ago it seemed like we were in pretty good shape to hit our year-end passive income goal, recent events in the financial markets have negatively impacted our ability to generate passive income.

Fortunately, we’re doing our best to adapt to our changing circumstances. Turns out, it seems like we do have a plan for our passive income getting metaphorically punched in the face.

Even though he’s now in his fifties, I still don’t want any part of facing off against Iron Mike in the boxing ring, however!

The major carnage to our passive income occurred at the end of October, when a pair of stocks we own in our brokerage account slashed their dividends.

It started on October 29th, when Shopping Mall REIT CBL & Associates Properties Inc. slashed its stock dividend to an annualized rate of $0.30/share from $0.80/share.

Given the well-known pressures facing traditional shopping malls, a previous dividend cut late last year (to the aforementioned rate of $0.80/share from $1.06/share), and widespread speculation by Wall Street analysts that CBL might be in line for another dividend cut, I wasn’t shocked when the company lowered its dividend again. Although we still own CBL, we had reduced our position a bit earlier this year, realizing some losses to offset capital gains from other investments.

That said, CBL has still slashed its dividend by more than 80% over the past 13 months, and the loss of that passive income definitely hurts, even if it is on a smaller number of shares than we would have owned if we hadn’t sold some of our investment in the name!

Financial IndependenceThe next day, the bad news continued, when General Electric Company announced it would be cutting its stock dividend for the second time in less than a year. GE reported that it would be lowering its annualized dividend rate to just $0.04/share in December from $0.48/share (and a rate of $0.96/share as recently as last fall).

While GE’s dividend cut was also anticipated by many market participants, this one hurt us a bit more, as we hadn’t sold any of our GE stock ahead of the announcement.

The magnitude of GE’s dividend cut was even greater than CBL’s, but what really hurt was the meager quarterly dividend rate of a penny a share that was maintained by the company. I think GE’s management and investor relations team want to be able to continue telling the market the company has paid a stock dividend for over a century, but with the dividend dropping by more than 95% over the past year, in my opinion it’s almost insulting the company will continue to make this claim!

So in a period of 24 hours, our investment portfolio experienced a pair of major dividend cuts that negatively impacted our ability to generate passive income.

The obvious question is:

What was our plan for dealing with these back to back punches in the mouth?

And our plan is:

To change absolutely nothing.

While doing nothing clearly wouldn’t work against Mike Tyson, we’re fortunate that unlike many people, who may have to make some difficult decisions following the dividend cuts by CBL and GE, we’re not reliant on passive income to fund our lifestyle. We’re already blessed to spend less than I earn from my employer, so any passive income our portfolio generates is, at this point in our lives, pure gravy.

While that doesn’t mean I’m happy about those recent dividend cuts, and they will make it a bit more difficult to reach our year-end passive income target, we haven’t changed anything in response to them.

We’ve continued investing in my 401(k) every two weeks.

We’ve continued to roll over maturing CDs into new CDs paying higher interest rates.

And we’ve made small additions to three of the other dividend stocks in our portfolio this quarter.

While the smaller dividends we’ll be receiving each quarter from CBL and GE means it will take a little longer for us to reach our passive income goals, in the grand scheme of our financial lives, even those significant dividend cuts are essentially a non-event for us.

Which is why we’re staying the course, and changing nothing.

Even after getting punched in the mouth.


My personal experiences are not a recommendation or opinion to buy, sell, or hold shares of any particular stock or other investment. Readers should conduct their own research and consult with trusted and experienced financial advisors before making any investment decisions, and recognize that past investment performance is no guarantee of future price appreciation.

Have any stocks you own experienced dividend cuts in recent months? What was your response?


  • Physician on FIRE

    December 10, 2018

    All dividends are is a return of a portion of your investment. It’s the total return that matters, so I wouldn’t sweat the dividend or lack thereof.

    If GE and CBL were to return no dividend like Berkshire Hathaway and give you the returns that Berkshire Hathaway has over the years, there would be cause for rejoicing.


    • ROMT

      December 10, 2018

      You’re right that dividends are just one component of what’s most important, total return, and that companies that don’t pay dividends end up with more funds to invest in M&A, new businesses, paying down debt, etc. Some companies end up investing their retained earnings well, while other’s don’t! Over the past few years, GE and CBL certainly would fall into the “don’t” camp!

      I like dividends because they provide a fairly consistent source of funds I can use to make additional investments myself. But I could certainly do the same thing by selling existing positions.

      Many management teams assert they can invest funds not paid out as dividends more productively than their shareholders. Buffett has said in the past that once he can’t do that at Berkshire Hathaway, that’s when it will be time to finally begin paying the dividend that was authorized several years ago.

      And you are absolutely right that if I could trade the returns of the past few decades since I started investing of GE or CBL for BRK I would do it in a second!

      Thanks for reading and taking the time to comment PoF!

  • Tim

    December 11, 2018

    I would’ t change anything. Other than buying back into GE. I sold all mine off a couple years ago.. Things didn’t look good then… they don’t look great now…. but we are getting back to 2008 era prices with GE and unless they go bankrupt it could easily be a good win again. but I would discount the possibility of bankruptcy either.

    • ROMT

      December 11, 2018

      Sounds like you timed getting out of GE pretty well Tim – congrats!

      One of my major concerns is around the long term care insurance liabilities GE kept when they spun out Genworth Financial in 2004. Those came back to bite GE recently, and although they have set aside a lot of money to bolster those reserves at this point, correctly reserving for LTC policies sold in the 1980s and 1990s has proven to be a challenge for the life insurance industry.


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