Dividend Stocks: When To Sell?

So far I have only concentrated on the idea of picking up great companies which have a history of increasing payments and which have a higher than average probability of increasing their payments in the future. I have explored the ideas of dollar cost averaging, my screen for entry criteria and my ideas on portfolio diversification . But when would I consider actually selling a dividend stock?

To be perfectly honest the answer is not a black and white one.

Initially I had mentioned that I planned on selling my stocks only in the occasion that a company that I own cuts its dividend. Even though my entry criteria is to buy companies that increase their payments over time, a company that I hold and does not raise its payment is on my radar. However, as I continuously add funds to my portfolio, the stocks that are unable to raise their dividend would not get any extra funding. Thus their proportion in my overall portfolio will decrease over time.

Is it really a good idea to sell stocks that cut their payments? What if this is just a temporary solution? Typically, when a stock cuts its dividend, the stock had already lost double digits from its recent highs, prior to the announcement. After the announcement, all dividend investors rush for the exits, creating even further supply in the stock thus pushing the price even lower.

I looked at Consolidated Edison’s (ED) long-term chart for this exercise. From my previous analysis of ED  I had noticed that the company had cut its dividend in 1974. The stock did fall by about 50% in April 1974. Had you sold at that time, you’d have been happy when the stock fell to $6/ share and when the dividend payment was cut by more than 50%. By February 1977, however, the dividend was even higher than the previous dividend and the stock was a little bit higher as well. Investors received increasing dividend payments for over 32 years since that moment.

Next week I will share some additional research that helped in my decision to sell or hold stocks that cut their dividend.

Comments

[TA]

Nice post,

I tend to stick to Buffett's rules when it comes to selling a dividend stock.

Currently there's plenty of pressure for BAC to cut their dividend. Would I sell their stock if it did? No, not unless the business becomes broken somehow.

Banks are one of the better consistent money generators(especially in Canada) out there and unless bad management changed that, the dividend would be steadily increased as in your ED example.

Just my 2 cents...

[mariposa]

Been holding my BAC because of the dividend. It would have been long gone without it, plus thinking it will survive and ultimately thrive.
Said to myself, would sell if cut dividend, but would I?
Also holding a few others like business development and Canroy because of the dividend. And especially with most of those on div. rein., then if a long term hold, get more shares when price lower.

So, the answer is to sell when the price is up!!!

And if cut, is the dividend still higher than bonds or inflation?

[Michael Levy]

When a stock pays a good dividend and loses value it is a good idea to feel when it is a good oppertunity to buy. Case in point just as an example and not as a recomendation as i never give tips to buy - PFE.
It now pays around 8% and even though its pipeline does not look too healthy, it has no debt, large cash reserves, resonable management and at $17.50 it may be a good entry point to begin dollar cost averaging if it drops futher. The main criteria to ask yourself is; will the company still be in business in 5 years, what will its value be and what is the risk/reward?

[skwestorange]

Are not all the banks including BAC, JPM and WB facing questions of dividend cuts because their business models are broken? To me they won't be cutting dividends if their business models are good. It may be long time before they all reestbalish their business models. Should it logically lead to decision to dump their stocks if their dividend is cut even if it may be temporary (couple of years may be) action?

[messy]

To: blah blah,,,,i agree with you about Canada banks, they seem to do much better than American banks especially those in the subprime mess, meanwhile the Canada banks have taken few writedowns. I believe that tell you alot about USA BANK management verses Canadian bank management. Also checkout charts of BAC VS RY.
MESSY