Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
When to sell dividend paying stocks
Old 07-18-2016, 02:05 PM   #1
Dryer sheet aficionado
 
Join Date: Mar 2013
Posts: 27
When to sell dividend paying stocks

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


Sent from my iPad using Early Retirement Forum
__________________

__________________
tcaron20 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-18-2016, 02:10 PM   #2
Dryer sheet aficionado
 
Join Date: Mar 2016
Location: An island off the coast of Florida
Posts: 45
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.
__________________

__________________
atmsmshr is offline   Reply With Quote
Old 07-18-2016, 02:34 PM   #3
Dryer sheet aficionado
 
Join Date: Mar 2013
Posts: 27
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?


Sent from my iPad using Early Retirement Forum
__________________
tcaron20 is offline   Reply With Quote
Old 07-18-2016, 02:40 PM   #4
Recycles dryer sheets
 
Join Date: Feb 2016
Location: Near Sacramento
Posts: 119
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)
__________________
Chris7 is offline   Reply With Quote
Old 07-18-2016, 02:48 PM   #5
Recycles dryer sheets
Taxman59's Avatar
 
Join Date: Sep 2014
Posts: 471
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!
__________________
Taxman59 is offline   Reply With Quote
Old 07-18-2016, 03:42 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 2,764
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.
__________________
Danmar is offline   Reply With Quote
Old 07-18-2016, 03:47 PM   #7
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 1,474
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!
__________________
Dash man is offline   Reply With Quote
Old 07-18-2016, 03:59 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
braumeister's Avatar
 
Join Date: Feb 2010
Location: Northern Kentucky
Posts: 7,815
Quote:
Originally Posted by tcaron20 View Post
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%?
__________________
braumeister is offline   Reply With Quote
Old 07-18-2016, 09:11 PM   #9
Confused about dryer sheets
Investment_Hunting's Avatar
 
Join Date: Jul 2016
Posts: 3
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.
__________________
Investment_Hunting is offline   Reply With Quote
Old 07-18-2016, 09:21 PM   #10
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands
Posts: 6,324
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.
__________________
......."Everybody has a plan until they get punched in the face." -- philosopher Mike Tyson.
aja8888 is offline   Reply With Quote
Old 07-18-2016, 09:32 PM   #11
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 837
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.
__________________
gcgang is offline   Reply With Quote
Old 07-18-2016, 11:35 PM   #12
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 184
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.
__________________
HpRyder is offline   Reply With Quote
Old 07-19-2016, 04:57 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
braumeister's Avatar
 
Join Date: Feb 2010
Location: Northern Kentucky
Posts: 7,815
Quote:
Originally Posted by aja8888 View Post
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.
__________________
braumeister is offline   Reply With Quote
Old 07-19-2016, 06:32 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 2,764
Quote:
Originally Posted by braumeister View Post
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.
__________________
Danmar is offline   Reply With Quote
Old 07-19-2016, 06:46 AM   #15
Dryer sheet aficionado
 
Join Date: Mar 2013
Posts: 27
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


Sent from my iPad using Early Retirement Forum
__________________
tcaron20 is offline   Reply With Quote
Old 07-19-2016, 07:00 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 2,764
Quote:
Originally Posted by tcaron20 View Post
I think that in the long run banks are going to suffer once rates start to move up.




Sent from my iPad using Early Retirement Forum
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.
__________________
Danmar is offline   Reply With Quote
Old 07-19-2016, 07:01 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 17,690
Quote:
Originally Posted by Danmar View Post
Quote:
Originally Posted by braumeister View Post
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
__________________
ERD50 is offline   Reply With Quote
Old 07-19-2016, 07:14 AM   #18
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Second City Land
Posts: 23,287
Quote:
Originally Posted by braumeister View Post
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.

Quote:
Originally Posted by tcaron20 View Post
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.
__________________
MichaelB is offline   Reply With Quote
Old 07-19-2016, 07:47 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 17,690
Quote:
Originally Posted by MichaelB View Post
Quote:
Originally Posted by braumeister View Post
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
__________________
ERD50 is offline   Reply With Quote
Old 07-19-2016, 08:04 AM   #20
Full time employment: Posting here.
Koogie's Avatar
 
Join Date: Nov 2007
Location: GTA
Posts: 714
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.
__________________

__________________
"No one's interested in something you didn't do"
Tragically Hip - Wheat Kings
Koogie is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Help setting up a dividend paying portfolio calichica Young Dreamers 21 12-02-2013 03:26 PM
Dividend paying Stocks swodo FIRE and Money 117 08-26-2011 07:52 AM
Preferred stocks vs. paying off mortgage rayvt Life after FIRE 1 09-23-2008 08:36 AM
Ultimate Dividend Playbook; Dividend Harvest Portfolio FUEGO FIRE and Money 22 08-12-2008 11:16 AM
Suggestions on Dividend Paying ETFs? camberiu FIRE and Money 5 01-15-2007 03:44 PM

 

 
All times are GMT -6. The time now is 12:29 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.