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Old 07-19-2016, 10:06 AM   #21
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You can agree with it if you want, but it won't help you in making a good financial decision.
Looking for an argument?
.
.

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Old 07-19-2016, 11:02 AM   #22
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I agree that your yield hasn't changed and that if no fundamental factors of the underlying company have changed you should hold indefinitely and enjoy the juicy dividend.

ie: "Don't just do something, stand there !"

However, I also believe that our own psychology is the number one thing working against us in investing. If you feel nervous about how much the stock has run up and would like to "lock in" some of that capital gain, you could consider trimming the position back to your original expenditure (ie: you bought $25K of it, so trim back to the original investment)
That way you get the psychological boost of doing something, of seeing that $X amount of money shifting over to your cash position and you still have your original dollar amount of faith in the company.
It's nothing more than a re-arrangement but sometimes that can feel good.
Yes. When buying or selling, people often think of doing all or nothing, and not about going 1/2 way.

Instead of trying to be 100% right then turning out to be 100% wrong, I always like to take the middle road and be 50% right. This wishy-washy way keeps me from getting rich, but also has kept me out of the poor house so far.
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Old 07-19-2016, 12:14 PM   #23
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Yes. When buying or selling, people often think of doing all or nothing, and not about going 1/2 way...
Yep. That's what I've done in the past: "Doing all or nothing." I liked the thought that I was making a true commitment.
It hasn't worked for me. Additionally, selling a stock just because its price has gone up quite a bit hasn't worked so well either:

After a big run-up on each of these dividend stocks, I sold them.

INTC (Intel). Has proceeded to gain 40.32% since selling it.

UTX (United Technology) Has gained 25.43% since selling it.

RTN (Raytheon) Has gained 40.44% since selling it.

The above stocks are the only ones I've sold because of big run-ups while I was holding them. Whatever stocks I replaced them with haven't done nearly as well.
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Old 07-19-2016, 12:38 PM   #24
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Just buy dividend oriented ETF and you never have to worry about answering this question.


I like it simple.
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Old 07-19-2016, 02:55 PM   #25
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Yep. That's what I've done in the past: "Doing all or nothing." I liked the thought that I was making a true commitment.
It hasn't worked for me. Additionally, selling a stock just because its price has gone up quite a bit hasn't worked so well either:

After a big run-up on each of these dividend stocks, I sold them.

INTC (Intel). Has proceeded to gain 40.32% since selling it.

UTX (United Technology) Has gained 25.43% since selling it.

RTN (Raytheon) Has gained 40.44% since selling it.

The above stocks are the only ones I've sold because of big run-ups while I was holding them. Whatever stocks I replaced them with haven't done nearly as well.
This is off topic to dividend payers, but in line with holding your winners. No one has made the point that you have less $ to reinvest if you're subject to tax.

I just had a stock I bought in 2003 for $2500 announce its being taken over giving me about $65,000. I think it's all cash, so I'll end up paying tax, but would never have seen that kind of gain if I'd have sold because it had "gone up".

I'd never sell because it's "gone up". Only if I had some insight as to why the stock was overvalued. I'm not that good to be able to determine that.
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Old 07-19-2016, 03:06 PM   #26
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No, just because the stock went up in price that had no effect on your 6% dividend. Sure, it's lower for those buying it now, but your dividend yield hasn't changed.
It has no effect on the monetary amount of the dividend, but with respect to the current stock price (if it rises), it sure has percentage-wise.
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Old 07-19-2016, 03:07 PM   #27
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Just buy dividend oriented ETF and you never have to worry about answering this question.

I like it simple.
Yeah, but the real trade-off is having to give up all the angst that comes with dealing with individual dividend stocks. Why would someone want to give that up?
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Old 07-19-2016, 03:26 PM   #28
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Yeah, but the real trade-off is having to give up all the angst that comes with dealing with individual dividend stocks. Why would someone want to give that up?
Right, people pay good money for mental masturbation.

There are some big gainers too. All the divy equities I've purchased are up, some 40% or more in a year. Has any divy ETF done that?
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Old 07-19-2016, 04:39 PM   #29
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You can agree with it if you want, but it won't help you in making a good financial decision.

Consider this, all else being equal (hypothetical spherical chickens in a vacuum scenario):

You bought a stock @ $10 and it pays a $0.60 annual dividend (6%). Sometime later, the stock rises to $20, still paying a $0.60 annual dividend. If you invested $10,000 originally, you get $600 annual divs. The stock would now sell for $20,000.

You can measure your dividend % on the original purchase price at 6%, or at the current price and get 3%.

Now lets say you can buy another stock with similar outlook, that pays a 5% dividend at its current price. If you consider you are getting 6%, you won't trade stocks. But you could get 5% on your entire amount if you traded. So the new stock would provide 5% on $20,000, which is $1,000 annual div.

$1,000 is more than $600. Looking at a yield based on original purchase price, rather than current alternatives clouds your thinking, and would cost you $400 a year in this example.

-ERD50
Nothing happens in a vacuum, though. You just can't answer the question without the OP naming the stock he plans to sell and the one he'd buy. The one he has now seems to be a good stock due to the run up, assuming the run up was based on good fundamentals. So he sells that and buys the
3%er. Six months from now, it cuts it's dividend and of course the price will fall. Now you're getting a smaller dividend AND your out money cause the price fell.
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Old 07-19-2016, 05:20 PM   #30
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Nothing happens in a vacuum, though. You just can't answer the question without the OP naming the stock he plans to sell and the one he'd buy. The one he has now seems to be a good stock due to the run up, assuming the run up was based on good fundamentals. So he sells that and buys the
3%er. Six months from now, it cuts it's dividend and of course the price will fall. Now you're getting a smaller dividend AND your out money cause the price fell.
Of course. I was speaking in generalities, and hypothetically, hence my comment: "Consider this, all else being equal (hypothetical spherical chickens in a vacuum scenario):"

The spherical chicken/vacuum reference is the punchline of a long joke about a theoretical physicist and a chicken farmer - to solve such complex problems, other variables are eliminated to the extent they can be. Spheres are the simplest 3D shape, and a vacuum eliminates the effects of air resistance, etc.

So no, we cannot know, even (especially?) if he named the stock. But if he thinks it may go back down, he could (using the numbers in my example) use the funds to purchase what he thinks to be 'safer' stocks, that are paying say, 4% instead. Then he's making 4% on twice as much money as he was making 6% on (or compare to a 3% on the current NAV). So even if the assumed safer stocks drop to 75% of their vale, he's at the same point.

I'm not offering any buy/sell advice - just offering information on how to view the issue. And I stick to my earlier point - calculating div yield on the purchase, rather than current price (taking any taxes into account), isn't helpful.

-ERD50
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Old 07-19-2016, 06:37 PM   #31
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Thanks for the responses. I am looking at this from a present value vs. a future value of the dividends received over 5 years.
Immediately grabbing the gain or future money today gets you the dividends now for reinvestment thereby leveraging the gain advantage to increase the overall performance.

Just a different way of looking at it?


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Old 07-19-2016, 08:09 PM   #32
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Also a good idea to calculate yield on cost (YoC) to evaluate.

The importance of yield on cost - Dividend Growth Investor
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Old 07-20-2016, 04:32 AM   #33
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Of course. I was speaking in generalities, and hypothetically, hence my comment: "Consider this, all else being equal (hypothetical spherical chickens in a vacuum scenario):"

The spherical chicken/vacuum reference is the punchline of a long joke about a theoretical physicist and a chicken farmer - to solve such complex problems, other variables are eliminated to the extent they can be. Spheres are the simplest 3D shape, and a vacuum eliminates the effects of air resistance, etc.

So no, we cannot know, even (especially?) if he named the stock. But if he thinks it may go back down, he could (using the numbers in my example) use the funds to purchase what he thinks to be 'safer' stocks, that are paying say, 4% instead. Then he's making 4% on twice as much money as he was making 6% on (or compare to a 3% on the current NAV). So even if the assumed safer stocks drop to 75% of their vale, he's at the same point.

I'm not offering any buy/sell advice - just offering information on how to view the issue. And I stick to my earlier point - calculating div yield on the purchase, rather than current price (taking any taxes into account), isn't helpful.

-ERD50
I cant argue with your point, it's solid. But if he names both stocks people can at least give him an opinion on the two stocks and their future returns. Say he's sitting on a big gain on CMG Chipotle (they don't pay a div, but let's assume they did) we could say sell because the run up has gone past their future growth, the PE is out of this world high, the ecoli scare has hurt sales, etc. Take the money and run.
Suppose he wants to buy JNJ, we can say they sell products that are in demand no matter the economy, the valuation is better, they have a long history of increasing the div, etc go buy it.
Without any of this info the question is meaningless. Only quoted you as a way into the conversation.
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Old 07-20-2016, 04:53 AM   #34
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Also a good idea to calculate yield on cost (YoC) to evaluate.

The importance of yield on cost - Dividend Growth Investor
Again, I think the yield on cost is of little use. Agree, that it is really important that a stock increases its div. But the yield on cost is primarily driven by when you bought the stock so is of little use as long as it is increasing, as it will if divs increase. I think div growth rates are a much more important metric.
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Old 07-20-2016, 05:13 AM   #35
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To build on the "CMG Chipotle" example (let's call it Stock A).

1. If Stock A's current yield now falls below his threshold level because the price has run up, he has a good problem. If the payment stream in dollars is still sufficient, the overall risk is manageable, and he is confident about the future for dividend growth and dividend sustainability, he might be inclined to hold Stock A indefinitely. If one or more of those are not true, that is a reason to consider harvesting the gain and investing his capital differently. See #3.

2. If the gain in Stock A is so material it might be called a home run, this might trump the other considerations (at least it might for me). After all, there are many fish in the sea with good or very good attributes for dividend investors. People with individual stock portfolios look for outliers with which to take advantage of up and down price movements. That is the whole point of having this type of portfolio IMO.

3. In more general terms, barring a home run in Stock A, If Stock B (a different dividend paying stock that matches his dividend stock investment current criteria) is clearly superior to Stock A in one or more of his criteria, he might very well choose to sell Stock A, harvest the gain, pay the tax, and invest in Stock B.

4. Assuming the criteria used to originally purchase Stock A and now consider Stock B are the same (or very similar), I think he is making a fair comparison and it is apples to apples.
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Old 07-20-2016, 08:04 AM   #36
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I cant argue with your point, it's solid. But if he names both stocks people can at least give him an opinion on the two stocks and their future returns. ...
Without any of this info the question is meaningless. Only quoted you as a way into the conversation.
I'd say it is two different conversations, and some people are mixing them together.

I see the OP as a general question of if/when to sell after a run up. He did't mention or ask about the specific company. Then the discussion turned to one about whether a dividend should be calculated on the purchase price, or the current price. That is general as well.

I'd suggest that if the OP really wants input on the opinions of the future outlook of a particular stock, he'd probably be better off starting a new thread and naming the stock. This one has split and drifted from that topic (and never really was about that anyhow, that I can see).


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Again, I think the yield on cost is of little use. Agree, that it is really important that a stock increases its div. But the yield on cost is primarily driven by when you bought the stock so is of little use as long as it is increasing, as it will if divs increase. I think div growth rates are a much more important metric.
Excellent point - allow me to expand on that a little:

The decision to hold or sell an investment should be based on assumptions of future returns. Picture two investors who each hold the same amount (and % of their portfolio) of a liquid, openly traded stock (in a tax deferred account to take cap gains taxes out of the picture for now). Is there any way you would tell one of them to hold, and one of them to sell? How could that be justified? Either the stock is seen to do well in the future, or it isn't. The future is all that matters.

Maybe one bought the stock at $10, and the other at $20. It makes no difference regarding any current sell/hold recommendation. None at all.

Maybe the stock saw a big run up to $100. But if you think that makes it risky, it is just as risky to the person who bought 1000 shares at $10 as the person who bought 1000 shares at $20. They both currently have $100,000 'at risk'. No one is 'playing with the house money', it is their money now.

-ERD50
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Old 07-20-2016, 12:04 PM   #37
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I think div growth rates are a much more important metric.
I recall a study that showed the 10 year track record of dividend growth making common stocks higher yielding than preferreds from the same group of companies.

Does anyone know of such ongoing studies on common stock rates of dividend growth?
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Old 07-20-2016, 04:07 PM   #38
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If you are going to purchase an individual stock you should know in advance the reasons for which you would sell. For myself I do not hold onto a stock if the dividend yield falls beneath 1.5% yield for the next 12 months. My intention is to buy all stocks with a dividend yield over 2.0% so I would not sell on a short term blip up, I also review the financial statements and will sell if a company does not increase the dividend yield as expected. If a stock is in an industry that I forsee major problems for in the coming 1-2 years such as oil in late 2014 then I sell the stocks in that industry unless I really think the problems are unlikely to affect the stock. Through these rules I have held onto VFC for very large gains while at the same time selling Hormel for a switch in Accenture which then I sold for a switch to Lockheed Martin.

A six percent yield is a high yielding stock that, without knowing what the stock is in is most likely a bit more speculative than I would like.
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Old 07-20-2016, 04:09 PM   #39
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Again, I think the yield on cost is of little use. Agree, that it is really important that a stock increases its div. But the yield on cost is primarily driven by when you bought the stock so is of little use as long as it is increasing, as it will if divs increase. I think div growth rates are a much more important metric.
Yes, that ground and more was covered in the additional links articles. I noticed a when to sell article in the links.
I use fastgraphs for monitoring the ongoing and past. YOC is important to some.
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Old 07-20-2016, 05:17 PM   #40
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Each individual company stock needs to be evaluated individually looking at the fundamentals, including finances and prospects for future growth, dividend growth and ability to sustain the growth. If you find a stock that you believe will do better than one you own, including consideration of tax consequences, then go for it. If you just chase dividends without the homework, you'll get what you deserve.


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