Number One Rule for Selling an Investment.
A wise investor has rules for both buying and selling investments. This includes stocks, bonds, ETFs and any other investment type. Selling can be a more difficult and traumatic task. Investors like to hold on to losers to see if they can “break even” when the price recovers. A fool and his remaining investment is soon parted. The selling is frequently postponed to the point where the investor just creates an even bigger loss and sometimes a total loss. I’ve been there.
It is also true that investors don’t like to sell winners, because it “can only go up even more if I just wait.” Perhaps, but there will be downturns. Some good investments can quickly experience significant price declines. A cardinal rule is to avoid emotional attachment to an investment. Just because I love Apple (AAPL) or IBM doesn’t mean I have to love the stock.
There are several reasons a buy-and-hold investor might sell an investment. The first one in my written investment plan is “sell if the dividend is cut or suspended.” Today, for example, GasLog Partners (GLOP) slid to an all-time low today after announcing a quarterly distribution reduction to $0.125/unit for Q1 2020 from $0.561/unit for Q4 2019. The shares were trading at more than $10 per share before this announcement. Immediately after the announcement the shares dropped and lost almost half of their value. Because I owned shares, I sold them. There is no doubt in my mind that it was time to sell. I sold them when they were still trading above $6/share. Those who hesitated are likely to regret the delay. Thankfully, GLOP was just a small fraction of my energy holdings. My rule says “sell” so I sold.
It is important to differentiate between a dividend cut and a variable dividend. Some companies ETFs don’t pay an increasing dividend that is a steady upward slope. Recently I received a Seeking Alpha update on my position in NEWT (Newtek Business Solutions.) The $0.44 dividend was a -38% decrease from the previous $0.71 dividend. That news didn’t alarm me. NEWT pays a dividend that fluctuates by quarter. It is important to compare last year’s same quarter dividend with the announced dividend. As you can see, the dividend for March 2019 was $0.40 per share and the dividend announced for March 2020 is $0.44 per share. While the new dividend is a decrease from last quarter, it doesn’t qualify as a true dividend reduction.
Other businesses like Canada bank TD (The Toronto-Dominion Bank) have similar fluctuations. TD had a 2-for-1 stock split 02/02/2014. Other than that, the trend is a slight roller coaster ride for the quarterly dividend, but the historical pattern is an upward trend.
Using Seeking Alpha, I can see the true nature of TD’s dividend growth.
You should recognize a dividend payment pattern for all investments, including ETFs. If it is growing, enjoy the extra income. If it bumps up and dips down with a recognized pattern, don’t be alarmed. If it is dramatically cut or suspended, give serious thought to abandoning ship.
Full disclosure: We own 200 shares of NEWT and 600 shares of TD.
Stay tuned for some other reasons to sell an investment. You want to have a plan. You may also want to read this previous blog: https://proverbs27flocks.com/2020/01/21/sell-what-when-and-why/