Tuesday, July 14, 2015

When to sell dividend stocks

ARLP's stock price has been in decline for several months now. I have a decent position and even 'averaged down' a while back. I anxiously awaited the company's latest dividend announcement. If there were any troubles with the business, I figured they would not pay or cut their dividends. But they paid right on schedule. So I am holding on to the stock for now.  I will not add to the position until it meets my entry criteria.

In fact, this makes me think I need three different screeners. One for buying, one for adding (incl. Average down and just growing) and one for reducing or closing a position.

To what extend should the price play a roll?   On the one hand, if the fundamentals are good, and the company keeps paying or raising dividends then why not keep it ?  On the other hand, if the stock price falls 20, 30, 50 percent, at what point is it time to cut losses or take a profit ?

For a balanced portfolio, we'll need to keep the sector diversity in mind. We'll need to look at positions that have a much larger allocation than others. We can also look at taking lower yielding or lower quality positions and calculate the upside of moving those funds into other positions; even new positions.

At the moment I will wait and see. I think ARLP's core business is good. They have room to pay dividends for years to come. And while in the long term renewable energy will replace coal, I believe that coal has some good life left. The demand for energy is not going down. And ironically electric cars and smart homes need more grid power which is mostly coal at the moment.

I have two other positions on my watch-to-sell list. CVX and TAL both did not raise their dividend yet this year. They've both paid the same amount for 5 quarters or more. I expect they will at some point this year, which technically puts their raise in this calendar year, and checks the box of 'raising dividends in consecutive years'. But it does show that their management is looking at the market and especially the oil prices. I'm stubborn here as well. I think we're not done consuming oil, and CVX is well-positioned. TAL may have a harder time. But my exit criteria hold. As long as they keep paying dividends, I'll hold on to the stocks. Cut or miss and I'll sell. If not raising goes on for too long, I'll see if I can use the funds in a dividend growth stock.

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