When To Sell A Stock

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Includes: CNP, CNR
by: Dividend Earner

The Canadian market has definitely pulled back in the last while. If you are only invested in Canadian equities, the market must be testing you with the pull back. I have been diversified across the US with conglomerates at a 50/50 for now. It's also very important to control your emotions and follow your strategy.

When To Sell a Stock

We spend most of our time looking for opportunities but sometimes we need to sell a stock and it's a different mental process. Make sure you put aside any emotions and just evaluate the investment as is. Until you sell, it's just a paper loss.

Below are some warnings or signs that you may want to consider selling.

Sign 1 - Dividend yield too high

A high yield is a preliminary sign that a dividend cut is imminent. It's the investors showing they don't believe in the company's payout based on the price they are keeping the stock at.

Sign 2 - Dividend is cut

A very big flag is when a company cut its dividend. Does that mean you should sell? In some cases yes, and in others no. It's really up to you, but the dividend cut needs to be looked into.

If a company cuts its dividend because it did not manage the business effectively, it has to reflect neglect in the management team.

If the cut is based on external factors, it requires consideration. For example, the financial industry had a crisis and the rules changed. They needed to adjust for the new BASEL III rules. Last year, OPEC had a big impact on the energy sector and Canadian companies have been adjusting. At this point, the dividend cut becomes a decision of whether or not you want the business in your portfolio.

Crescent Point Energy (NYSE:CPG) (CPG Trend) has dropped a fair bit in the past year and they just cut their dividend in half. The yield is still relatively high, but is it still a stock to hold? It's one of my holdings, and I am currently keeping it. I bought it for the income and while the yield on cost is low, the market yield is great. I try not to focus on my paper loss but on where it will go based on their adjustment to the new oil prices.

Sign 3 - Not fitting in your strategy

While we often fit a broad investing strategy, we tend to refine it to our needs based on where we are in our investing journey. Sometimes, changes must be made and it may trigger the sell of a stock or more than just one.

For example, when I first started investing, I was usually focused on higher yield companies but as I learned more, I switched to growth stocks with dividend growth. High yield is good when in retirement or approaching retirement, but I want growth in my accumulation years.

Sign 4 - Take a profit

This is a fun one since you are making a profit. At times, you may want to take a profit if one stock has had a good run. It may be that you have more than you want in that sector or that you don't believe it has room to grow further.

Sign 5 - Management changes

You may not sell, but it can be a sign to evaluate what the new management or CEO will do. A review after one quarter and a conference call could tell you what the executives have in mind.

Remember, not all stocks are winners at all times. I have the same holding China Metro-Rural Holdings Limited (NYSEMKT:CNR) in two accounts, which I have bought at different times. The investment is up in one account and down in the other. I am leaving it as is and it's a reminder that time plays a big factor in seeing growth. Remind yourself that markets go up and down and time is needed for a recovery. What you do when the markets are down can have a huge impact on your portfolio; focus on opportunities rather than your paper loss.

Disclosure: View my holdings here.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.