When to sell dividend paying stocks

[tcaron20]

So I bought a stock for its dividend, which was about 6% at $36.00 a share. The stock has run up to 50.00. This equals about
5.6 years of dividends through gains. Time to sell the stock and maybe repurchase on a downturn?

There are lots of articles on when to sell dividend stocks but they rarely mention when the stock has run up so much.

Bird in hand?

Thanks,

Tom C


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[atmsmshr]

This is the question I'm concerned about. Got a heavy position in utilities which has been a great ride for dividends in the past 10 years, but with the prospect of real rate increases I am about ready to pare back soon.

 

[tcaron20]

I do not buy dividend stocks for appreciation in value. I look to the dividends and the strength of the company to continue paying them. When a stock has a major upside gain I think you have to consider whether it is sustainable and whether it is a temporary situation. I like the idea of taking almost 6 years of dividends in one fell swoop with the idea that within 6 years' especially in this market that there will be another opportunity to buy it low again.

Make sense?


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[Chris7]

Can you buy something else that is as or less risky that will provide the same income? If not, then consider holding. If you can, then consider selling.

Quite a few of my stocks are up in value, but there aren't too many that I like better, so I just keep hanging on.

cd :O)

 

[Taxman59]

I bought Smuckers at a 3% dividend with the expectation that the dividends would rise over time. They have, up nearly 50% in 5 years. The "problem " is that the stock price has increased nearly 90% so the yield is down to 1.96%. My "formula" says sell, but I like the company, and the stock has performed well and I foresee a steady increase in the dividend and stock price (though not at the current rate). Thus I will continue to hold it for now.


This is the problem with buying individual stocks, picking a winning horse is not too hard, the key is knowing when to get off and ride another!

 

[Danmar]

I generally don't sell just because a stock has risen. If I think the envireonment has changed I might. If they cut their div I sell but only had to do this once. My portfolio is poorly diversified as a result but has significantly outperformed all reasonable benchmarks. Not recommending my approach, just describing it.

 

[Dash man]

The question to ask yourself is there a better place to put your money? Don't forget potential tax consequences if that applies. I'm hanging on to my dividend stocks since I still have plenty in cash and CDs.


Enjoying life!

 

[braumeister]

So I bought a stock for its dividend, which was about 6% at $36.00 a share. The stock has run up to 50.00.

If you think the company is in trouble and may have to cut the dividend, then certainly you should consider selling, but if they look healthy then why not just keep getting your 6%?

 

[Investment_Hunting]

I think selling to lock in gains isn't a bad idea, but neither is holding the stock. Are you investing for dividends or total return? If dividends only, as long as the company keeps paying and increasing dividends without any drastic business changes or reduced free cash flow, holding is the right answer.

 

[aja8888]

Maybe sell the low yielding ones that went up in price pushing the % yield to say ~2% and capture the gain. Then put the cash into a Muni bond fund yielding close to that and wait for a meltdown of the dividend stocks to reload.

 

[gcgang]

I try to do homework before I buy. Intention is to own the stock long time.

I'll sell if:
1). Stock is at a loss ( I love having the gubment subsidize my mistakes).
2). I need $ and a position is overweight.

Otherwise, I just hold on.

 

[HpRyder]

How about selling enough to recover your investment cost + cg, and letting the rest ride. I've done that for several and with the money gone and purchased other dividend payers.

 

[braumeister]

Maybe sell the low yielding ones that went up in price pushing the % yield to say ~2% and capture the gain. Then put the cash into a Muni bond fund yielding close to that and wait for a meltdown of the dividend stocks to reload.

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.

 

[Danmar]

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.

Except you can sell a 2% yielding stock and buy one yielding 3% and you will have more current income. Need to consider taxes of course. I don't view historical yield as very useful metric in making current decisions. Makes you feel good though if the divs increase.

I have a very large stock position(my previous employer). This stock has been wonderful over many decades, with a CAGR total return of over 12% since I have owned it. From time to time I will sell some, reinvest in other very well established div payers if I can preserve my div cash flow after paying the cap gains tax. This doesn't always work out because the previous employer's stock continues to be such a good performer. Good problem to have.

 

[tcaron20]

Thanks for all the advice. Much appreciated. Not sure if it is OK to mention the stock ticker but it is a bank stock that was pretty beat up and recovered nicely. Most analysts are saying sell due to interest rate environment.

I like the idea of recovering the original investment. I think that in the long run banks are going to suffer once rates start to move up.

Tom C


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[Danmar]

I think that in the long run banks are going to suffer once rates start to move up.




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No, banks will benefit greatly once rates rise. Their margins have been really depressed in this envireonment because they have reached zero rates paid on much of their deposits. When rates rise loan rates will increase much faster then deposit rates.

There may be a slight offsetting impact on higher rates vis a vis their divs, (ie higher rates mean div yield less atractive) but this will be minor.

 

[ERD50]

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.

Except you can sell a 2% yielding stock and buy one yielding 3% and you will have more current income. Need to consider taxes of course. I don't view historical yield as very useful metric in making current decisions. Makes you feel good though if the divs increase. ...

Agree with Danmar. You need to compare your investments to the current alternatives. If the current alternative is better, than a retroactive look is holding you back from making a good decision.

To the OP - when I traded more individual stocks, anything that rose far faster/higher than the average market, I strongly considered selling off at least some of it. There tends to be a reversion to the mean, so I preferred to lock in at least some of my good fortune.

It might just be a psychological trick, but if you sell half, you can justify whatever happens in the future ('it kept going up - good thing I held on to half of it, and still gained some diversification - wise decision!' or ... 'it went down - good thing I dumped half of it, locked in some profits and gained some diversification - wise decision!').

-ERD50

 

[MichaelB]

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.

I agree with this. The OP is not comparing the current yield (4.3% after the price increase) with other dividend options, he is speculating on the price of this same stock, betting that it will decline.

I do not buy dividend stocks for appreciation in value. I look to the dividends and the strength of the company to continue paying them. When a stock has a major upside gain I think you have to consider whether it is sustainable and whether it is a temporary situation. I like the idea of taking almost 6 years of dividends in one fell swoop with the idea that within 6 years' especially in this market that there will be another opportunity to buy it low again.

The question is not about yield, it is about market timing. The critical question is "is the $2.16 dividend expected to continue?" If so, selling is inconsistent with the reason it was purchased.

 

[ERD50]

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.

I agree with this. The OP is not comparing the current yield (4.3% after the price increase) with other dividend options, he is speculating on the price of this same stock, betting that it will decline. ....

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

 

[Koogie]

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.

 

[MichaelB]

You can agree with it if you want, but it won't help you in making a good financial decision.

Looking for an argument?
.
.

 

[NW-Bound]

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.

 

[redduck]

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.

 

[eta2020]

Just buy dividend oriented ETF and you never have to worry about answering this question.


I like it simple.

 

[gcgang]

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.