Friday, January 9, 2009

When to buy back dividend shares that you have previously sold?

In a previous article, I discussed that when your dividend stock cuts or eliminates its dividend, it would be a good decision to admit that you were wrong on this decision and sell immediately. I understand that selling and admitting that one is wrong is a very difficult decision from a psychological standpoint. But it is essential to cut your losses on some investments that you would not otherwise consider buying in order to protect your capital and stay in the game.

Admitting that you are wrong and taking a decisive action, instead of hoping that the things would turn out for the better works both ways. When companies cut their dividends, I sell their stock immediately. My recent experience with ACAS is an example of that. However when a company that has cut or eliminated their dividends announces that it would start increasing its dividends again or its initiating a dividend payment I would definitely consider initiating a position. Dollar cost averaging my way into this position could be an ideal way to get a feel of how your investment might perform. Another entry signal that one could look for is for the company to increase its dividends for at least ten years, before buying back their shares in the stock.


Relevant Articles:

- Dividend Aristocrats List for 2009
- Dividend Aristocrats
- Best Dividends Stocks for the Long Run
- Best High Yield Dividend Stocks for 2009
- Best CD Rates

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3 comments:

  1. If a company cuts its dividend, that does not necessarily mean that you were wrong. It depends on why you bought the stock.

    If you bought the stock so that they would increase their dividend every year without fail, then I agree with you.

    If you bought the stock because you believed that one day the company would be worth significantly more than it is worth today, it is a different story.

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  2. I buy stocks which could make more money and pay higher dividends. If this changes (the div is cut) then why should I hold on to the stock? How am I certain that the dividend cut isn't just an indicator that something worse is going to happen to the business? I have been studying Dow Jones stocks for years and I have noticed that stocks which cannot afford to pay a stable and increasing dividend are very cyclical and are not suitable for long-term investors.

    Check out GM and Bethlehem Steel for reference :-)

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  3. A dividend cut is an automatic sell for me. BAC was sold instantly, and I am glad I did.

    I will allow Bac 10 years of dividend increases before I buy again, unless the CEO is still Lewis. He lied and said the dividend was safe. I do not trust him.

    If he moves to another company, then that onw will be off the list.

    ReplyDelete

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