Dividend investors don't get nervous about the market. Low prices mean buying opportunities. Having said that, if a stock you own is in free fall, you do watch it closely. If there are underlying business issues, then the stock could meet your sell criteria and you need to get out. That's not bad, that's just life. If we only picked winners then we'd all be millionaires, right ? Knowing when to get out is critical. Your next move would be to redeploy that cash in a next buy opportunity.
One of the benefits of being a dividend investor is that the company sends unambiguous signals about its health every quarter. The board of the company decides to pay dividend or not, and if it pays, it decides to pay the same as last time, raise or cut. So regardless of what 'the market' does with the stock price of a company, we get to know how the board feels. I'm sure a lot goes into a decision to cut or not pay dividend, so we'd know if something is amiss when that happens.
ARLP is one of my purchases that was running fine for a while, paid a nice dividend, and then the stock price started sliding. I averaged down twice as the stock was meeting my entry criteria when I had capital available. Watching the stock slide I decided not to deploy more capital and see what happens at the earning call and dividend announcement. To my delight ARLP decided to pay dividend, and increase it! ARLP has been raising dividend each quarter for a long time. This is really giving a great pulse of the business. Their payout ratio of 58% can support these raises for some time to come. It is very tempting to add to the position now. But the Yield and P/E ratio are off the charts because of the price drop and outside of my screening criteria.
Still I don't see anything fundamentally wrong with the business and the earnings. Yes, coal as an industry will be under lots of pressure for a long time to come. Stricter regulations, alternative energy, and so on. I believe though that the world's growing population will only increase the need for power, and the need at the moment outgrows the supply growth. Renewable energy can't make a dent yet. More electronics, including cars, will continue to drive power. Crazy weather will drive power usage during hotting summers and freak winter storms. And the current lower prices increase the barrier of entry to the coal market and put smaller or highly leveraged coal businesses at risk. All this is good news for ARLP.
I'm really on the fence -- a good business whose parameters are way outside my entry criteria. Should I go with more conservative (read: inside the screener) stocks, or should I make an exception and average down again ?