A valid reason for a firm to reduce or eliminate its cash dividends is if the tax laws have recently changed such that dividends are taxed at an investor's marginal rate while capital gains are tax exempt.

Cash Dividends

Payments made by a corporation to its shareholders out of its profits or reserves in the form of cash.

Tax Laws

are the legal rules and regulations governing how individuals, businesses, and other entities are taxed by the government.

Capital Gains

The profit from the sale of a capital asset, such as stocks or real estate, over its purchase price.