At the moment, I sell only when a stock cuts its dividend.
I had a wondering about that and I call it "decreased and deceased", meaning "how many stocks decreased their dividends and eventually fell 100% to the oblivion and how many of them started increasing their dividends again and managed to overcome?".
I don't have the answer for that but maybe someone had already took the challenge and checked that?
This will answer the big question whether DGIers will only sell a stock when it cuts its dividend.
Posts: 1,530
Threads: 172
Joined: Mar 2013
Reputation:
24
I don't subscribe to the theory that a DG investor should sell any holding that cuts its dividend. A dividend cut, whether small or large, is never good news, but whether to hold the stock is always going to be a case-by-case determination for me. Reducing or suspending the dividend could be a harbinger of doom, or it might just be management's very prudent reaction to temporarily difficult business conditions.
As much as I love the deeply built-in expectation of dividends that rise every year, I've always been a little skeptical of the logic underneath it. From a business management perspective, it seems much more rational to say "we're going to return X percent of profits to shareholders as dividends." Yes, shareholders might not like the volatility of dividends that fluctuate with profits, but management would be free to run the business for the long term without taking on unnecessary debt to avoid the ire of shareholders.
crimsonghost747
Unregistered
(10-03-2016, 03:44 PM)Kerim Wrote: As much as I love the deeply built-in expectation of dividends that rise every year, I've always been a little skeptical of the logic underneath it. From a business management perspective, it seems much more rational to say "we're going to return X percent of profits to shareholders as dividends." Yes, shareholders might not like the volatility of dividends that fluctuate with profits, but management would be free to run the business for the long term without taking on unnecessary debt to avoid the ire of shareholders.
Agree 100%
Also in the end DGI is about getting a growing dividend from the portfolio, not from each and every single company in the portfolio. Well at least that's the case for me. I don't mind it if, for acceptable reasons, one of my holdings reduces it's dividend, or keeps it the same. Still, with reinvested dividends and the majority of the companies in my portfolio making a dividend increase, the overall income will increase.
I do own some companies from Europe and there the trend in general seems to be "dividend paid out will be between X and Y percentage of EPS" which does result in a fluctuating dividend. However, so far, I've never had a year where my total dividend income would be less than the year before. Though I must admit that is because I do own a lot of safe and stable dividend growers from north america, but it's just there to prove that one or two decreases (as long as it's for acceptable reasons) won't bring down your whole portfolio.
Posts: 1,002
Threads: 89
Joined: Dec 2013
Reputation:
32
I agree with the above opinions however I had to grow into that opinion. After a couple of "bad picks" and bad "faith in management" hopes, I think if management is taking prudent steps, then I'd have to depend on the other members of my "dividend team" to keep the portfolio moving forward. If I find the income growth getting too stunted, then it's time to look at improving the portfolio.
=====
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
(10-03-2016, 05:16 PM)crimsonghost747 Wrote: ...but it's just there to prove that one or two decreases (as long as it's for acceptable reasons) won't bring down your whole portfolio.
What do you consider as acceptable reasons?
crimsonghost747
Unregistered
(10-04-2016, 04:59 AM)Amos Wrote: (10-03-2016, 05:16 PM)crimsonghost747 Wrote: ...but it's just there to prove that one or two decreases (as long as it's for acceptable reasons) won't bring down your whole portfolio.
What do you consider as acceptable reasons?
For example, I'm fine with a highly cyclical company reducing the dividend during the bad years. This would of course mean quite large increases when the times are good.
Another example could be a company that is facing a big one time expense, such as an acquisiton. I'm completely fine with a company lowering their dividend after an acquisition in order to bring the debt levels back to their target. Once again in this scenario I would assume the company to bring the dividend back to the old levels, or quite possibly higher, after a short while.
I guess overall it's more about estimating if the decrease is a permanent one (in which case there is probably negative earnings growth over the long term, this would be a reason to sell) or if it's just a thing that will pass.
Posts: 1,530
Threads: 172
Joined: Mar 2013
Reputation:
24
(10-03-2016, 05:32 PM)Dividend Watcher Wrote: I agree with the above opinions however I had to grow into that opinion. After a couple of "bad picks" and bad "faith in management" hopes, I think if management is taking prudent steps, then I'd have to depend on the other members of my "dividend team" to keep the portfolio moving forward. If I find the income growth getting too stunted, then it's time to look at improving the portfolio.
Amen, DW. I very much wish that I had the experience and wisdom about stock picking that I have today back when I started building the portfolio back in 2008.
(Of course if I did, I'd probably have $400,000 worth of MO and nothing else....)
Well Kermin, would $400,000 of MO be such a bad thing?
Posts: 1,530
Threads: 172
Joined: Mar 2013
Reputation:
24
(10-04-2016, 11:52 AM)ChadR Wrote: Well Kermin, would $400,000 of MO be such a bad thing?
Nope! Especially not at $16 per share yielding 8 percent. 
Posts: 1,899
Threads: 48
Joined: May 2013
Reputation:
10
(10-03-2016, 03:44 PM)Kerim Wrote: I don't subscribe to the theory that a DG investor should sell any holding that cuts its dividend. A dividend cut, whether small or large, is never good news, but whether to hold the stock is always going to be a case-by-case determination for me.
Same here. I've stuck with many businesses that have cut their dividends. When a company cuts their dividend, they tend to outperform after the initial shock (in my experience). They have higher retained earnings without the pressure to pay the cash out as dividends. These retained earnings can be kept on the balance sheet as cash, used to pay down debt, used to accelerate EPS growth by buying back shares, etc.
|
