VYM - Thoughts On When To Sell A Dividend Stock
2023-05-10 06:35:00 ET
Summary
- We don’t buy stocks to look for a selling point as dividend investors. Our holding period is for life.
- However, as you become more experienced and learn from investing mistakes, there are times when you should sell a dividend stock.
- The key piece is ensuring you know your “why” to holding a dividend stock and the “why” on when to sell a stock.
I know, this is taboo. We don’t buy to sell! We don’t buy stocks to look for a selling point as dividend investors, do we? Our holding period is for life !
9 times out of 10, or even more, that is definitely the case.
However, as you become more experienced and learn from investing mistakes, I believe that there are in fact times when you should sell a dividend stock.
Now, that specific thought or strategy is where “personal finance” comes in to play, as it really comes down to you , the investor. It comes down to when you see that a stock you own no longer fits your dividend investing strategy. Here are my thoughts.
When I’ve sold stocks
I haven’t sold stocks often. In the last few years, I have sold stock such as - Bed Bath & Beyond ( BBBYQ ), thank goodness I missed that one, Mattel ( MAT ), just was a dog of a stock for me, especially after not paying a dividend, Delta ( DAL ) - primarily the dividend, etc.
Therefore, over time, I have learned something from each stock - the reason why I bought it, and the reasons for the flaws in it. Example, with BBBYQ, it was a dying fad with the family event scenes (wedding, baby, etc.), and DAL with a heavy, capital-intensive business.
What about other dividend stocks that we all hold, where we question them in our portfolio? Even those that we have held for years, that pay a dividend - and sometimes an even growing dividend? There could be reasons to hold, but also reasons to sell those dividend stocks too.
The key piece, though, is ensuring you know your “why” to holding a dividend stock and the “why” on when to sell a stock. I wanted to evaluate where I believe my “why” or metrics are, when I should consider selling a dividend stock I own by at least having them on the chopping block.
When to sell a dividend stock - Potential metrics and reasons
Now onto the personal finance side of this article. I have plenty of stocks that I am possibly looking to sell.
That video only showcased 3 stocks that I am mulling over a sale decision. When reviewing the stocks I’ve listed as a dividend stock sale candidate, I noticed a few trends:
1) Lack of dividend growth. If a company which routinely increases their dividend suddenly stops for a three years with no future plan or indication of future dividend hikes, this catches my eye. Now, if the dividend yield is higher, than that may be okay. However, if the dividend stock yields < 4%, for me that goes on the list for potential stocks to sell. The one stock that fit this bill was FirstEnergy Corp. ( FE ), which is now going on 4 years with no increases (i.e., 2019).
The yield is < 4%, and with no dividend growth, I truly would do better in a US Treasury at this point! I could go into National Grid ( NGG ), Consolidated Edison ( ED ) or my Vanguard High Dividend Yield ETF ( VYM ) and get a better combination of yield plus growth.
2) Low dividend growth, low yield. As a dividend investor, you understand the pendulum or “see-saw”. The higher the dividend growth rate, the lower the dividend yield. The higher the dividend yield, the lower the dividend growth rate. You typically want to see that combination. Example - for a 3%-yielding stock, you want to see a 5-7%+ dividend growth rate. Or, a 7% dividend yield stock with a dividend growth rate of 1-3%. One last example, a 0.50-1.50% dividend-yielding stock with a 7-10%+ dividend growth rate.
I come up with this, as overall, I’d like my dividend portfolio to have between an 8-10% dividend “factor” as I call it. This is the combination of yield plus growth rate. At the time of this writing, I am at 9.43%. This means my income, if I reinvest dividends, should grow 9.43% per year.
An example in this case is MDU Resources Group ( MDU ). The reason this stock fits the bill here is the stock yields 3%. The dividend growth rate is 2.50% and is declining. Therefore, only a 5.00-5.50% dividend factor for me. Moving that to VYM with a 3% yield and a 5-8% dividend growth rate just makes sense.
3) No dividend. Yes, duh, right? No dividend-paying stocks in your portfolio. How did they enter my portfolio? Am I sitting around buying growth stocks or non-income producing assets? Not so fast. There are many times when stocks I own perform spin-offs.
The most recent, significant spin-off has been Warner Bros. Discovery ( WBD ). I own 68 shares of that piece of junk and have now watched the stock drop from the $19-20 range down to below $13 as I continue to hold. I should have sold, and should still sell and move the $800-850 into an income-producing asset - again, an ETF such as VYM - getting the nice combination that I strive for.
Selling a dividend stock conclusion and thoughts
What do you think of the metrics I have listed above, on when I would sell a dividend stock? Do you have your own criteria and/or have sold stocks in the past?
In order to stay on track and to make sure your assets align with your goals, you may have to “clean up” positions in your dividend stock portfolio.
I gave one example that fits each of the criteria above, but there are plenty more within my portfolio that are under review. What stocks are you debating on selling that you still hold? Would love to see your feedback!
As always, good luck and happy investing, everyone!
- Lanny
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Thoughts On When To Sell A Dividend Stock