Dividend Investing Is Like NFL Football

| September 11, 2015

I don’t know if it hits you.

But this time of the year, there’s something akin to a spiritual reawakening.

Football’s back.

Let’s just get the hook for Deflategate.  Enough already.

And please, no dividend deflation.  It’s tough enough making money on the market without dividend cuts.

Before 4 o’clock on the afternoon on September 1st, NFL teams had to reduce their rosters to 75 active players max.

I’ve never owned 75 stocks… way too many to keep a watchful eye on.

But this time of the year, I kind of like the idea of reducing the roster and making sure the dividend stocks in my portfolio are winners.

Well before December, when the institutional traders are dressing up their portfolios to show off year-end results, I like to have my housekeeping all taken care of.

What’s the best way to reduce your own roster of dividend stocks?

Here are a couple of classic, time-honored Wall Street pieces of advice, tips for dividend investing to keep in mind.

Dividend Investing Tip #1

“Let your winners run.”

The door definitely swings both ways.  A lot of investors swear by this rule, and a lot of investors consider it a recipe for disaster.

Well, greed does have a way of getting us in trouble.

So here’s my take.

It all depends on the overall performance of your portfolio, your need for income, and what needs to happen with the allocation of your assets.

If you’ve had a winner that’s been on a run, say a stock like JP Morgan Chase $JPM, you should have a good reason why you want it sell it.

If you sell JP Morgan Chase, what do you do with the proceeds?  Is there a stock waiting in the wings that you’re enthusiastic about buying?

It’s just like the NFL coach managing his roster.  Who’s going to play the position?

If you think about each one of your dividend stocks playing a position and performing a specific function in your portfolio, you’ll be making a smart move.

For instance, if you like what’s happening with the housing recovery right now and you want one of the best dividend stocks in this sector, do you have this covered?

If you think European markets have been beaten down to fire sale levels, do you have one of the best dividend stocks for this opportunity?

NFL coaches need balance.  Championships aren’t won when you have too many offensive linemen and not enough wide receivers.

So make sure your portfolio has good balance when it comes to your dividend stocks.

And here’s something else…

Dividend Investing Tip #2

Don’t worry about leaving some money on the table.

You don’t want to hold out for every last dollar.

You can’t possibly know when to sell at a precise market high.  What you can do is make the trend your friend, keep an eye on trading volume, and sell when you believe enthusiasm is approaching its peak.

Don’t get all wound up about selling too soon.

It’s not like you’ve turned over the ball on your own one yard line.

You know what?

On the first trading day of 2015, you could have bought Starbucks $SBUX for $40.72.  The last time I checked, the other day, it was at $54.85.

It’s not exactly a dividend powerhouse.  The yield is 1.17%.  But the dividend has been growing for four years and the dividend payout ratio is a modest 40.5%.

For all its maturity, Starbucks performs like a growth stock, with solid capital appreciation.

Look at what Starbucks has done over the past year…

Starbucks $SBUX #DividendStocks Chart

If you own Starbucks, should you sell it?

Is this a winner you want to let run?

Well, maybe you take some profits if you have another stock you believe is ready to go on a similar run.

Maybe your portfolio needs some rebalancing.  Perhaps your asset allocation is a bit heavy on stocks and light on bonds because of the capital appreciation of your stocks.  Or maybe you don’t like the lofty market valuations.

Whatever the case, have a good reason why you want to take some money off the table.

And here’s something else to keep in mind.

If everybody’s in love with Starbucks, and based on what we see from the analysts’ reports, they pretty much are, maybe you take this advice from legendary investor Sir John

Templeton…

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”

Dividend Investing Tip #3

“Stocks aren’t bought and sold facts, but expectations.”

Sure, a fact such as an earnings report or a change in the dividend growth will trigger buying and selling.

But it’s always what we believe the fact will bring.  Pound down seven Old-Fashioneds and the results are fairly certain.

With your dividend stocks, it’s a similar kind of cause and effect, only the effect isn’t a given.

It’s an expectation.

When earnings growth slows down, we expect the stock price to slide.   When a dividend is cut, especially following years of reliable growth, we expect the stock price to take a hit.

Don’t confuse facts with expectations.  Don’t assume a guaranteed cause and effect.  The market has a way of throwing us curves.

And when it comes to evaluating your dividend stocks, whether to hold or sell, try to make the best connections possible with the information at hand between facts and expectations.

Dividend Investing Tip #4

More often than you might expect, it’s best to do nothing.

Here’s a comment from one of the more notorious Wall Street speculators of the early twentieth century, Jesse Livermore.

“After spending many years on Wall Street, and after making and losing millions of dollars. I want to tell you this:  It never was my thinking that made the big money for me.  It always was my sitting.”

Riding out storms and socking away dividend checks isn’t a bad way to go.  Better yet is reinvesting your dividends.

Curious about this?

Here’s how dividend reinvestment plans really work.

Ready To Cut Your Dividend Stocks Roster?

Use these four dividend investing tips.  They’ll help you evaluate your dividend stocks from a fresh perspective.

After all the market volatility we’ve had, taking a deep breath and taking a measured look at your stocks is probably a good move.

Is it hard?  Sure… selling a stock that’s done a nice job for you isn’t easy.  But just like a hard- nosed NFL coach, you need to set emotions aside (easier said than done).

Boil it all down to performance.

And remember, we’re projecting future performance.

And whether you’re looking at an offensive lineman or a dividend stock, that’s always tough.

Cordially,

Paul Duke
Dividend Stocks Research

Note:  Paul Duke writes and edits DividendStocksResearch.com.  Sign up for our free dividend reports and dividend newsletter at http://www.dividendstocksresearch.com/free-sign-up.  We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.

 

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