Wednesday, September 19, 2012

When to sell a DG stock

Lately I've been seeing several articles/posts discussing when to sell a DG stock.  While it is tempting to sell at a high, it might not be worth it.  Unless you see companies approaching grossly overvalued why get rid of the position especially if the underlying reason that you're investing is for dividend growth.  Now if a company like Walmart starts trading at a 30 P/E multiple then yes it might be time to sell because thanks to the sheer size of Walmart a 30 P/E multiple is a little ridiculous for a company that can't grow that fast.



One thing that I haven't seen in a lot of these articles is the idea of turning off the dividend reinvestment program which thanks to the online world is all of about 5 clicks of the mouse for me to accomplish.  If one of your investments has a nice run-up in price the reinvestment of said dividends is always an option.  Say for example the current yield drops below your investment threshold but the fundamentals of the business haven't changed then I would lean toward just not reinvesting the dividends in that company until it's price comes back to more reasonable valuations.

I struggled with this on the shares of Walmart that purchased back in late April when news of the Mexican bribery scandal hit.  Within a short time the price climbed 25% and the current yield subsequently fell.  I debated on whether I should sell to capture the gains and put it to use in another DG stock, but ultimately decided to just turn off the DRIP and collect the dividends.  Currently Walmart is yielding just over 2% which is too low for me to justify reinvestment when I wouldn't consider adding new capital at today's prices.  I liked the purchase of Walmart and was able to purchase shares at a price I was comfortable with.  However, until it reaches grossly overvalued I'll just sit back, collect the dividends and put them to use somewhere else.

2 comments:

  1. I try not to sell stocks very often, but sometimes it makes sense to exchange a holding with an unacceptably low current yield for another company that pays more. I don't want to be constantly moving around money due to transaction costs though.

    Walmart is a quality company that's a tough one. I'll let something ride below a 2% yield, but the dividend growth better be high enough to justify it.

    ReplyDelete
    Replies
    1. I agree. I also try not to make too many changes. Especially in my taxable account. I just saw so many articles recently and not one mentioned just turning off the DRIP as a possible option.

      Thanks for stopping by!

      Delete