Retirement Strategy: When Should We Sell Stocks From Our Portfolio?

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 |  Includes: AAPL, CVX, F, GE, GM, JNJ, KO, MCD, PG, T, XOM
by: Regarded Solutions

Executive summary:

  • The decision to sell shares is often more difficult than buying them.
  • For dividend income investors, how much income are you willing to give up by selling?
  • The goal of dividend income investing is to increase income, not decrease it.

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The roaring success of the "birth" of our new portfolio, BTDP (Buy The Dips Portfolio), has been amazing. I am finding new investors who have never had any strategy before, telling me that whatever I said makes more sense to them than anything they have ever heard.

Not everyone thinks of me as "brilliant" mind you, but enough people seem to at least understand what I am saying for me to know I am connecting with folks I had hoped to.

That alone makes my efforts worth everything to me. Of course not every facet of investing is simple, but I will continue to attempt to break stuff down into bite sized pieces that even our grandkids could understand. Selling shares of stock is one of those stickier actions that everyone has had issues with at some point in time.

Being around when dinosaurs walked the land, I think I have seen and heard just about every excuse ever conceived for selling, or NOT selling, a stock. Since my dinosaur pals did not play in the stock market, I had to figure it out on my own. It all boils down to two reasons a stock should be sold....just 2!

  • 1) You absolutely, positively, need the money for a dire emergency.
  • 2) The company has decided that it no longer wants to pay shareholders to own the stock.

That's it folks! Everything else is more of an excuse than a reason...and we can make as many excuses as there are stars in the night sky of course. Now, I did leave out some obvious other reasons, like estate issues. That can be worked out prior to our demise, but once we are gone, that's it...we no longer have control.

I know it is difficult to embrace our mortality, but none of us will get out alive. So, hopefully we have taught our heirs well, and of course forwarded them this article.

Dividend Investing Is All About The Income

I have the luxury of putting together a little portfolio that is geared for just one goal - create income. Putting our new BTDP together was a cinch, just like buying a stock when we know what we want. Our defined goals makes it so much easier doesn't it?

The BTDP consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), General Electric (NYSE:GE), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL) General Motors (NYSE:GM), and Ford (NYSE:F).

We can quibble over whether or not you like one stock versus another, or if I am crazy to think that a company will become a dividend champion, but when we have defined our goal as creating income, then all we need to do is look at our "pay check."

If our paycheck keeps going up, we are winning. If our paycheck keeps going down, we are losing. If we sell any shares of stock (aside for the 2 reasons I mentioned) all we are doing is taking a pay cut. Seriously, it is as simple as that.

Here is a chart I made for everyone to glance at, and for this article, I have added a few columns.

PAID STOCK YIELD Dividend Shares Yrly Income Cost 2/28Valu
31.95 T 5.60% 1.84 100 184 3195 3197
90.05 XOM 2.80% 2.52 100 252 9005 9627
86.78 JNJ 3.10% 2.64 100 264 8678 9209
37.21 KO 3.00% 1.22 100 122 3721 3821
75.71 PG 3.10% 2.41 100 241 7571 7871
24.35 GE 3.60% 0.88 100 88 2435 2547
93.02 MCD 3.50% 3.24 100 324 9302 9513
111.14 CVX 3.60% 4 100 400 11114 11533
526.45 AAPL 2.25% 12.2 100 1220 52645 52624
36.41 GM 3.30% 1.2 100 120 3641 3617
15.15 F 3.20% 0.5 100 50 1515 1541
Totals x x x 3265 112822 115100
Click to enlarge

Since I stated that I would weight each position the same, I meant shares of stock, so I placed an arbitrary number of shares for each position of 100 shares. It keeps it easy for me, and more importantly for you, to follow the bouncing ball. Of course no matter what number of shares you buy of any stock, the calculations are exactly the same.

The actual dividend, on an annualized basis, is noted in column #4. Multiply that by the number of shares and you will be pretty darn close to being accurate with how much that stock is paying you to own it. In column #6, the yearly income is calculated, and for our brand new little portfolio, the income received is about $3,265.

If you sell all the shares of T, because you want to go on a cruise, you will be losing about 6% of your income. On the other hand, if you add shares to T because it is so cheap (let's say you add another 100 shares) you will gain about 6% more income.

To the far right, I have added a column of what the value of our new portfolio was at the end of February. With the stocks I have selected, even if they dropped another 25%, the income would more than likely remain the same. These companies are not going anywhere, and aside from the few I feel are future dividend champs all of the rest will probably average roughly 7% increases in dividends paid, every single year.....forever.

If a company decides to quit paying me, I just look all of my reasons to sell a stock, and there it is: Number 2 reason is why I am selling.

My Goal Is To Increase Income, Not Decrease Income

I think I have laid out a fairly simple strategy here. Some folks do not feel this is the right path for them and that is absolutely fine. It is all about what you want, not me. That being said, my goal is to take that $3,265 of annual income and keep growing it every single quarter hopefully, or at the very least, annually.

The K.I.S.S. method of increasing income is as simple as 1, 2, 3.

  • 1) If the income is NOT needed to pay expenses, reinvest them right back into the stocks.
  • 2) Buy the dips and add to the core holdings. More shares, more income.
  • 3) Do absolutely nothing more except holding only those stocks that increase dividends every year, with a track record of 25 consecutive years just to take a tad more risk out of the equation. If all of the companies you own continue to do that on an overall average of 6%-7% per year, with a 30-year time horizon, you will more than triple that income. Even more if the dividends are reinvested.

The Bottom Line

I hope everyone can see what I am saying here. Even many of my dinosaur pals have been able to "finally" understand what I am talking about.

Keeping it simple might be easier than you think.

Disclaimer: The opinions of this author are nor recommendations to either buy or sell any security. Please remember to do your own research prior to making any investment decision.

Disclosure: I am long AAPL, F, GE, GM, JNJ, KO, MCD, T, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.