Whether on this blog or on the internet in general, you will find articles that explain how and when to buy dividend growth stocks. You can base your decision on the dividend growth history, the yield, the payout ratio, etc. But it is rare that you will hear anything about selling these stocks.The reason is very simple: Most dividend growth investors are playing the long game, because they believe to the strength of the company and expect to benefit from the magic of compound interest. However, things change over time and it is in your best interest to monitor your positions. And possibly sell them.
Investing in dividends is often considered a low-risk method, but that is to forget that Stocks are not fixed income securities. This strategy therefore also includes risks that must be taken into account. From there, he There are three main reasons to sell a dividend-paying stock:
- The fundamentals of society have changed
- The dividend has been static for two years in a row, or has been eliminated/reduced
- The title has clearly overbid
These are the only real reasons why you should sell all or part of a position. If the fundamentals of the company have changed, market share is eroding, earnings/revenues are down, then it may be in your best interest to sell. Companies change over time, and the reasons that led you to invest yesterday may no longer be relevant today. In this case, it may be better to sell that position and redeploy the capital to better opportunities. Never fall in love with a title: it will be a one-sided relationship. If the dividend is static or worse, cut/eliminated, it is a clear indicator to exit the position and move to a company that can continue to grow its dividend.
Companies can grow their dividends through revenue and earnings growth. A company that continues to pay a dividend for the sake of it, when its prospects are poor, is heading straight for a wall. Good dividend providers prefer to pay a conservative share of their profits and ensure their sustainability.
If a stock has become grossly overvalued, this may be an opportunity to look at a dividend-paying stock that has been ignored or unfairly punished by the markets. Let’s not forget that the markets are irrational and there are always stocks whose trading value does not reflect the intrinsic value of the company.
The most important thing is to don't panic and sell in a hurry. If a stock price drops dramatically in a short period of time, it is not always a reason to close a position. You need to keep a cool head and remember the reasons that led you to invest in the company. If the fundamentals remain the same, the dividend is not in danger. Otherwise, you will probably have to sell and redeploy that capital.
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Hello Jerome,
How do you determine if a stock is undervalued or overvalued?
Do indicators like RSI or Stochastic Oscillator, which are used in the Forex world, apply to stocks as well?
Thanks in advance for your reply,
Florian
Hi Florian,
Yes, these indicators are used by technical analysts. I am not fond of them because they are not very useful for my investment style. I am more oriented towards a fundamental approach, linked to the qualities of companies, and more particularly their capacity to generate dividends over the long term.
To determine the value of a stock I use a few key indicators, which are indicated in my portfolio, namely mainly the yield, dividend growth and the distribution ratio. The other indicators do not judge the value as such, but rather the strength and risk.
I also pay close attention to the overall assessment of the market, to determine good entry points:
http://www.dividendes.ch/evaluation-du-marche/
Hello, I congratulate you on the quality of your comments on a company, so yes, it is with pleasure that I would like to read your newsletter.
Thank you in advance and have a nice day.
Hello Eric, and thank you. Just enter your email in the dedicated field (right column or under an article).