Many of us invest in dividend stocks for the long haul. We expect that we will hang on to the stock, either enjoying regular income from the payouts, or using DRIPs to help build up nest eggs for the future. Few of us think about selling our dividend stocks. However, at times, it is prudent to consider selling your dividend stocks. Here are 3 times when you might consider selling a dividend stock:
1. The Company Cuts Its Dividend – Or Eliminates It
One of the most obvious reasons to sell a dividend stock is if the payout is cut, or eliminated. After all, the point of owning a dividend stock is to receive the regular payouts. When a company cuts its dividend, it means things are going poorly. When a company gets rid of a dividend, it could mean something even direr, and be an indication that you should sell – and get what you can.
Of course, in some cases, the cut might be relatively small, and in response to the economic situation. If a dividend is cut in such circumstances, it might not be a bad thing to see if dividends recover as the economy does. However, if other companies in the sector are raising dividends again, and your stock is left in the dust, perhaps it’s more than just the recession holding the company back.
Also, watch out if the annual yield drops below 1%. That could be a warning sign that it’s time to sell.
2. Your Position is in the Stock is Down Significantly
While many dividend investors don’t worry much about the fluctuations in the stock when they are small, matters can become worrisome if a bigger drop is seen. Day to day, and even month to month, the stock market can be quite volatile. However, if you see a huge drop – perhaps by half or more – it might be time to move on. Even though you invest in dividend stocks for the payouts, you also have to think of your initial capital and your investment. If you are taking a beating that will take you too long to recover from, you might need to sell. Besides, with that kind of drop, a dividend cut probably isn’t too far behind.
3. The Company Changes Management or Ownership
This isn’t always a bad thing. But if it appears that there will be changes made in management or ownership, and you are unsure about the results, it might be time to sell. You might not have a high opinion of the company doing the buying, and that might be an indication that it is time to sell. And, of course, if the sale results in the company going private, dividends are likely to be non-existent anyway. Carefully consider your options in such a situation, and decide what would be prudent for you.
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