One of the essential strategies of dividend investing for stable income is buy and hold. When you are investing in dividend stocks, and you expect to build an income portfolio based on these stocks, you, by definition, buy these stocks and hold them for long periods of time. However, it is important to understand that buy and hold investing isn’t about buying and then holding forever. It’s about buying and holding until the stocks in question no longer meet the requirements you have set for your income portfolio.
Why Buy and Hold Works for Dividend Investors
The main point of buy and hold investing is that you look for a stock with staying power. It should have solid fundamentals, and a certain amount of steadiness. A stock with good fundamentals, including competent management, reasonable profit margins and decent market share, is likely to make it through stock market downturns and difficulties.
Additionally, a good buy and hold stock often (but not always) makes a good dividend stock. A company on solid footing is not likely to cut dividends at the first sign of trouble in the stock market. Indeed, it is more likely to stay the course, aware that, over time, these short term fluctuations tend to even out a bit. This means that your payout is likely to keep coming, even during a recession or a stock market crash. Just look at the dividend aristocrats: These are stocks that continued increasing payouts, even during recessions, for 25 years. Some dividend aristocrats have been following this model for more than 40 years. It makes it fairly clear that these are stocks that do reasonably well, with solid performances over time, and well worth holding on to.
When to Sell a Buy and Hold Stock
Of course, even with some buy and hold stocks, the time comes to let go. Buy and hold doesn’t mean clinging tenaciously to a stock to the point of folly. Instead, it means holding on until it no longer makes sense to do so. As your goals change, you might need to shift your holdings. Additionally, you should also pay attention to the fundamentals of the stock. A change in the fundamentals may mean that it is time to sell a specific stock. This makes sense; then you can the money and invest in something else that makes more sense for you in the long term.
Frequent trades can eat into your earnings, and can cause problems when you are trying to build an income portfolio. Instead, you are better off saving money on commissions and making moves based on fundamental analysis, rather than making panic trades because of a stock market crash. Plus, you are more likely to meet your income goals over time with a buy and hold strategy. Choosing solid stocks to invest in, and building up your portfolio, will provide you with a better chance at creating a stable income stream as opposed to always changing what you hold in your portfolio.