Dividend investing is no different than investing in regular stocks when it comes down to the moment of selling your stocks. Once you know when to buy a dividend stock , you should also know when it is the right time to sell it. Your decision of selling your dividend stocks should never be based on fear or economic concerns but on solid and rational arguments. Here are quick indicators telling you when to sell your dividend stocks:
Sell Your Dividend Stock Upon A Dividend Cut
We already discuss the effect on a stock of a dividend cut. When it occurs, the stock value drops as it is an alarm signal. Dividend cuts indicate that the company has looked at all the possible options and they finally resign to cut their dividend payout in order to face their internal financial needs. It can be a result of bad management, a catastrophe (think of the BP case in 2010) or a sales slowdown.
In any case, you don’t want to be part of this boat. Your goal while holding dividend stocks is to earn dividend income. If this income becomes at risk, you should sell your dividend stock and move forward. You will definitely incur a capital loss (or at least selling at lower price) but you are better off selling right away and start hunting another solid dividend payer. For example, if you would have kept your financial stocks after the 2008, you would only start to earn dividend payout again in 2011 (small payouts for some banks). On the other side, there were astonish dividend investing opportunities back in 2009 – 2010 and you could be making 4-5% dividend yield with very solid companies.
So, bottom line; dividend cut = sell your dividend stock!
Sell Your Dividend Stock Before It’s Too Late
Sometimes, you don’t have to wait until there is a dividend cut to sell your stock. If you quarterly at your holding, you will be able to follow the key dividend ratios and sell upon weaker performance. Consider the present quarter result as long as what is coming up next for the company. If they show weaker dividend and financial ratios and there are no short term reasons to explain this, you are better off selling your dividend stock and go back to your investing model.
Sell Your Dividend Stock To Cash Your Profit
In some case, you will be quite lucky in your stock picking. If you happen to buy one a rock star, you might want to sell when you are making an important investment return. When stocks are going up too quickly, it is usually because of speculation or because it has become the “flavour of the month”. A dividend investor should not be looking for the homerun and should prefer a more stable portfolio. Selling your winners to buy other dividend payers is always a good move. A good indicator to sell your dividend stock in this situation would be to look at the P/E ratio. When it goes up higher than usual, there are some speculation involve. Sell you dividend stock and enjoy your investment return.
Sell Your Dividend Stock if You Love it Too Much
We often see investors falling in love with one of their stocks. They love the company, the way it’s managed or the product they are offering. However, lovers don’t make good match when it comes down to make money. If you love one of your dividend stock too much, you might want to consider selling it before your emotional attachment becomes too important. When it happens, dividend investors keep their stocks forever and choose to ignore selling alarms such as dividend cut or weaker financial ratios.
Final Advice: Sell Your Stock Right Away but don’t be in a Hurry to Buy Another Dividend Stock
If you have a good reason to sell your dividend stock, don’t hesitate and press the “sell” button as fast as possible. However, don’t be too trigger happy when it comes down to buy another stocks. It’s not a big deal if you are sitting on a few thousand for a couple of weeks or months in your investing account. You are better off moving the proceed of your sale in a money market fund and wait carefully for the next dividend buying opportunity.