It’s a popular investment topic and one I like to riff on every few months — when to sell dividend stocks.
There’s obviously no magic bullet, but I recently laid out five simple rules for dividend investors to follow:
Dividend cuts mean cut and run. Obviously, no dividend or a smaller dividend is a bad sign. Not just for your income, but because it could mean the company is burning cash just to keep the lights on … not a good sign.
Yield below 1% isn’t worth it. If a company’s dividend is below 1%, chances are it’s not a dividend stock in the true sense. It’s just a stock that happens to offer a dividend. Move on.
Buyout fallout. Frequently, big buyout deals are made with a lot of cash — and that can hurt dividend payouts. Be wary of any big deals associated with your dividend payers, including spin-offs that could pull out much-needed revenue or growth that was used to fuel dividends previously.
Down 50% or more. You can’t expect a 3% dividend alone to pay the bills if you’re circling the drain in a stock. Know when the share price flop is painful enough that even a juicy dividend isn’t worth it.
Watch “yield on cost.” Ideally, your dividends will continue to be increased over time and then your yield on cost — not the yield on current prices — will march higher. If this doesn’t happen, move on. A number of great stocks regularly increase their payouts over time and you should be in them.
Check out the video here, hosted by InvestorPlace assistant editor Alyssa Oursler, for complete details and examples. You can also read my recent article on when to sell dividends stocks here.
- Keep in mind reaching for yield can hurt you. (The Slant)
- Mark Hulbert on where to find the best dividend stocks. (WSJ)
- One of my favorite dividend stock screeners out there. (Dividend.com)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.