When to Sell: When Should I Sell?

When should I sell stock I bought as an investment?

As I’ve stated in previous posts, at heart, I’m a “dividend growth” investor. So, logically, when a stock ceases to be a dividend growth stock I should sell it.

Economic cycles and temporary misfortunes, however, don’t necessarily turn a good company bad. So, at what point should I stop giving an investment the “benefit of the doubt”? The answer to this question is different for different people.

Traders might place stop loss orders at 10% or 20% below current asking price and revise the orders upward as the stock goes up. The stop loss strategy tracks the sentiment-driven price of the stock, but not its fundamentals.

I’ve already proven that I lack the temperament of a trader. I’m successful with a long term fundamental approach – hence my attraction to dividends.

Along with Warren Buffet, my favorite holding period is forever. So, for me, the point when I’ll give up on an investment is partially answered by the following.

I’ll determine that a stock’s no longer appropriate for my “dividend growth” investment portfolio if:

A. The company stops paying a dividend.

B. The stock’s price increases such that the dividend yield falls below 2% and the P/E ratio rises above 25.

C. The company’s earnings decline enough that the dividend payout ratio exceeds 100%.

D. The stock’s “Financial Score” is a negative number.

As I thought through this partial list of sell signals, I revised my stock analysis workbook to measure them and generate a visible sell signal when they occur.

In my next post I’ll explore further reasons I should sell an investment stock.

Link to Topics in the Special Report: "When to Sell"