When to Sell a Dividend Paying Investment

Written by The Dividend Guy on September 8, 2005

I hate to sell stocks that I own. Why? One of two reasons:

1. I probably screwed up in my analysis of the company and made a dumb decision to buy in the first place;
or
2. Something has happened to the company that is totally beyond my control and I am powerless (e.g. the company has to pull a major product from the shelves because it is linked to deaths - a la Merck and Vioxx).

My selling principle tends to lean towards the “Buy and Hold” mentality. I believe in the likes of Warren Buffet who has said, “Our favorite holding period is forever”, or “I buy on the assumption that they could close the stock market the next day and not reopen it for five years.” I do however strongly believe that this does not mean that an investor should not have a selling strategy. There will be times when it may make sense to unload a stock.

Here are the “rules” I TRY to live by when deciding when to sell - sometimes it just doesn’t work though:
1. When there is something that I absolutely must buy because I am so confident that the company will provide me with much better returns (dividend yield and price appreciation) and I need the cash to do so, I sell something.
2. I sell my losers, not my winners. Winners tend to keep on winning and losers tend to keep on losing.
3. Keep emotion out of it - I make decisions based on the facts and not the feelings.

That’s it. Pretty basic. Any other rules that you follow when deciding to sell a stock? Let me know.


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6 Comments so far

  1. Anonymous September 8, 2005 10:30 am

    Your blog is creative Keep up the great work. Here’s the resolve a lot of people are searching for; how to buy & sell international travel on interest free credit; pay whenever you want.

  2. youngmiser September 8, 2005 11:10 am

    The above comment is a garbage comment just leeching a link to another web site.

    On another note, I like your strategy of investing in dividend paying stocks. How do you obtain these stocks? Do you do a direct invest through the company, or do you go throuh something like dripinvestor.com? I also assume you reinvest your dividends. I know through places like ameritrade, you have to be able to purchase a full share with your dividend for them to reinvest it, plus there are several companies they do not even support for dividend reinvestment.

  3. The Dividend Guy September 8, 2005 11:53 am

    Hey youngmiser. To obtain ideas for stocks I usually start here:

    Mergent’s Dividend Achievers

    or here:

    S&P 500 Dividend Aristocrats

    All of my purchasing is done through Canadian ShareOwner Investments. They do fractional dividend reinvestments. This does however limit the universe of stocks that I am able to invest it - as they offer a ’select’ list of stocks. I really wanted the dividend reinvestment and found that many of the stocks I was interested in were available through their service.

    Thanks for the comment.

  4. Canadian Capitalist September 9, 2005 7:16 pm

    I find selling more difficult than buying. I sell investments that I think don’t offer value anymore.

    Also, thought you might be interested in this story. Your investing style is similar to theirs.

  5. 2million September 10, 2005 3:41 pm

    Nice post. I too buy lots of dividend paying stocks (in DRIPs) but for some reason I never sell them. There have been several dividend paying stocks which have done poorly at some point. On a couple I have been using these periods to increase position because I still feel like long-term they are/will be great companies, while others I wish I had sold because long term I think they will just be mediocre. I guess when I am thinking long term, I need to think is this/will this be a great company?

  6. Frederic October 5, 2005 8:49 am

    Good common sense advice. Sometimes I wonder why some investors don’t have that kind of sense. The world of investment may be full of ups and downs, but if you apply some common sense, and don’t get bedazzled by the distractions, you’ll end up a winner!

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