Wednesday, June 25, 2008

When to sell your dividend stocks? Part 2

Last week I laid out some of my reasons why I am hesitant about selling stocks which have cut their dividends.















This chart really sums it all up – dividend cutters as well as non-dividend payers underperformed dividend growers by about 5% on average per annum from 1972- 2005.
At the end of the day I am in this game not only for the increasing dividend income but also for the capital gains that stock ownership might lead to.

Additional research from Prof Siegel about the performance from 1957 to 2007 of the original 500 stocks of the S&P 500 index suggests that there is a high chance that a well diversified portfolio ,which is representative of the major market sectors of its days, will perform close to what the overall market returns.

Due to the different information and research out there I will choose to sell or hold a stock that cuts its dividend on a case by case basis. Additional capital, however will not be allocated to dividend cutters, although dividends will be automatically reinvested.

Relevant Articles:

- When to sell your dividend stocks?
- Diversification and portfolio allocation
- Diversification Matters
- The case for dividend investing in retirement

9 comments:

  1. Interesting view. I am still firmly in the "sell, if they cut the dividend". Once management does it it becomes easy the second time.

    Best Wishes,
    Dividends4Life

    ReplyDelete
  2. D4L,

    Thanks for stopping by. Remember that I reserved the option to sell on a case by case basis.

    ReplyDelete
  3. This is a pretty good article. It didn't mention anything about your approach with the ED stock from your first post in this series.

    As someone who is interested in getting into the dividend game, my question is when is a good time to buy?

    Your post provided me with some food for thought about when to buy especially when the stock prices fall after dividend cuts. It sounds like a buy low, sell high strategy for capital gains purposes but dividend-wise, how does one know when it is worth buying a dividend stock after dividend cuts?

    ReplyDelete
  4. Hey I left you a comment a little while ago about what div stock to purchase with the extra cash i had. I was wondering if you could give me a little insight on my portfolio using my cake profile. Its a little aggressive but I am 23 so no need to be to conservative yet. Please let me know what you think I should add or sell. Im thinking of adding more KO at $53

    https://www.cakefinancial.com/app/pubPeople.do?sn=DNM

    ReplyDelete
  5. sorry that whole link didnt come out my cake financial sn is DNM....do you have cake financial by any chance?

    ReplyDelete
  6. MBL,

    Thanks for stopping by. Actually in order to get into the dividend game it might be a good idea to select companies where the dividend is well covered from the companies earnings and cashflows. An example of that could be JNJ.
    However purchasing stocks after a cut and holding for a specific amount of time as a trading strategy is something which could be a profitable endeavour. But in this site I try to preach a long-term buy and hold philosophy. I simply mentioned that selling after a dividend cut might not be the best strategy,since most of the dividend investors are selling at that point.

    Anonymous,

    Thanks for stopping by. I don't have Cake financial. In my opinion you might want to get more stocks for diversification. A good starting point are the companies in the Dividend Aristocrats list. Or you could check my previous analyzes as a starting point and determine for yourself which companies have a higher chance of growing in the future both their revenues and eps but also dividends.

    Another useful list to start might be the dividend champions:

    http://dividendgrowth.blogspot.com/2008/05/dividend-champions-watchlist.html

    ReplyDelete
  7. Hello, I live in paris and i read your blog from google. U.S. stocks are so cheap now bc of the weak dollar I wanted to know which dividend aristocrats you would purchase if you had to pick just 2 to buy at the current levels. I'm tempted by KMB and KO, please tell me which 2 you think will be good, I like PG but it has not fallen too much yet

    ReplyDelete
  8. That's a tough choice to make Anon. If I were you I'd research the companies I really wanted to buy, and then determine if they are suitable for you or not. Just because the stocks are cheap now doesn't mean that they can't get cheaper. Would you still be holding them if the price falls 40%?
    I am looking into ACAS and O right now. I have lost some money on them, but I plan on never selling.. So let's see how this works out for me.

    ReplyDelete
  9. What do you think of ACAS? I have some shares and was thinking of buying more. Do you think the dividend will continue to rise over the course of this next year?

    ReplyDelete

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