Dykstra: Dividend Yields Cut to Size

Companies that have reliably paid dividends for years are making the difficult choice to pare them back in this recession. Just last week, the New York Times(NYT Quote), CBS(CBS Quote) and Harley-Davidson(HOG Quote) reduced or suspended their dividends.

Dividends aren't a significant factor in picking stocks for my deep-in-the-money call options strategy, which has a win record of 95-1. Yet, by keeping tabs on a company's dividend outlook we can anticipate some investor behavior. Funds and investors that depend on this form of return are more likely to dump a stock that entirely suspends or eliminates its dividend, making cuts behave like a wild card that can push a stock down suddenly.

Many financial stocks have also been forced to slash dividends in recent months. All this is playing havoc with stock metrics known as the dividend yield. This ratio is a stock's annual dividend divided by its stock price. The dividend yield tells investors which stocks will pay them the most dividend cash for their buck. ...