Cuts trigger mechanical selling. Dividend-focused funds and indexes have rules requiring a payment history, so a cut can force them out regardless of valuation. Retail income holders often sell on the same news, so the price drop frequently exceeds the value of the lost payment.
The warning signs are a dividend-payout-ratio above 100%, dividends funded from debt or asset sales, and a dividend-yield far above sector peers.
Example: a $28 stock paying $2.00 yields 7.1%. The board halves the dividend to $1.00. The stock falls 22% to $21.80, which is far more than the $1.00 of lost annual income, because the holder base turned over.
Related: dividend-payout-ratio, dividend-yield, income-stock, dividend-aristocrat