1.)Know What Market You Are In at All Times. Know whether it is a Bull, a Bear, or possibly transitioning between the two. As I write, it is clearly a Bull Market. Next, 2.)Know What to Buy. Among all listed issues, there’s a 12% sliver of companies from which to acquire shares of the very safest-dividend growers. These companies are growing and safely raising their dividends at a low, double-digit rate in the teens. This is both reasonable and sustainable. 3.)Know When to Buy. By means of a number useful technical indicators, it is possible to discern when market risk is low, and an opportunity to step-up and accumulate more shares presents itself, with the lowest risk of immediate capital loss; and more importantly, at a time of highest dividend yield!
For a fourth principle, it is necessary to Know When to Sell. For some, this may mean to sell everything, as they don’t want to ride out the entire duration of a Bear Market, which is capable of slashing shares prices in half in a relatively short period of time. The last two Bear Market’s did precisely just that. But, for others, like myself, knowing when to sell has to do with each individual issue in the portfolio. Since the strategy revolves around safe-dividend growth, reasons to sell will revolve around the matter of dividends. If a company only raises at a rate in the single-digits; I’ll consider selling. If a company skips an annual raise; that’s grounds for selling. If a firm were to cut its dividend, it’s a candidate for liquidation. And, if a company were to suspend its dividend, it is gone. Understand, that by the time any company were to do any of those things, there would likely have been clues well in advance of that bad news. The earnings estimate line should have displayed poor health. The share price would probably have begun to suffer. The projected rate of expected annual growth from 1 to 3 years out would likely have been cut to a low figure. All of these are tip offs, that attention needs to be given as to whether a stock should be sold or not.
The beauty of this strategy and of the above “rules” pertaining to selling is this: These large, safe-dividend payers rarely get hurt badly or all-of-a-sudden. There is usually time to consider what you are going to do. Portfolio turn-over is usually very low. I’ve felt a need to sell something only very rarely. I typically get to hold an issue, continue to receive its dividend, and sell it away at some price that was higher than what I had paid for my shares. I have yet to feel an urgency to have to sell something immediately because I had been caught off-guard, and some truly bad news had come out requiring I rush to sell immediately. It just does not ever seem to happen to this kind of stock.
In the end, you might think that the EPS line would serve as a very good leading indicator, but I have learned that this is not true. The only reliable indicator has been the share price itself. Put a mental stop-loss underneath the price of your shares, or the current price, and don’t ever let any purchase turn into a serious loss. A 25% stop-loss underneath your initial purchase price, and then make it a moving stop-loss underneath the current price, as it should move up, would serve anyone well, and would rarely be hit, until a bear market should ensue. And, if it is a bear, and your company’s EPS numbers are holding up relatively well, and the dividends are still being raised. Hold on. Every Bear has died and a new Bull has always been born. These are the ultimate opportunities to accumulate more shares at the very highest dividend yields. With time, you will actually come to welcome share price corrections and Bear Markets for the tremendous bargains they afford you! Here’s to your investment success!
Harold F Crowell