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By Josh Peters, CFA | 03-24-2010 12:17 PM

When to Sell a Dividend Stock

Morningstar's Josh Peters outlines the questions dividend-stock investors should ask before selling.

Securities mentioned in this video
O Realty Income Corp
SNV Synovus Financial Corp

Josh Peters: Hello, this is Josh Peters, editor of Morningstar DividendInvestor. We've all heard that the idea with stocks is to buy low and sell high, right?

Well, dividend investors know that this isn't the only way to make money, that these dividend checks, these portions of a cash earnings of a company that you're receiving directly from a share of common stock are also a good way to compound your total return, produce a good amount of income, and reduce your risk over time.

Of course, the buying and the selling is still a natural part of investing in any stock regardless of what its dividend might be. You might have a pretty good idea of what you're looking for when you're going to buy a stock for its dividend, but what are the kinds of questions you might want to ask if it looks like it might be time to sell?

With the market obviously a lot closer to being high than low compared to a year ago, this sounds like as a good a time as any to consider what might make you want to sell a dividend-paying stock.

Now obviously if you think that something is going wrong with the dividend by a particular company, you're going to want to consider selling that stock.

If you could have forecasted all of the companies that were going to reduce their dividends through the latest recession and sold them out long before those dividends were actually cut, you probably could have saved yourself a lot of losses. I certainly wish somebody had told me how bad things were going to get.

But there are other reasons that you might want to consider selling a dividend-payer that don't necessarily have to do with crisis management, just because an existing situation is going bad. This gets into the realm, sometimes fuzzy, of valuation.

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