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By Josh Peters, CFA and Jeremy Glaser | 10-10-2013 02:00 PM

When to Sell Dividend Stocks

Investors shouldn't focus just on yield, but also on other factors, such as dividend growth rates and company familiarity, when considering selling dividend payers, says DividendInvestor editor Josh Peters.

Jeremy Glaser: For Morningstar, I’m Jeremy Glaser. When does it make sense to sell a dividend-paying position from your portfolio? I'm here with Josh Peters, editor of Morningstar DividendInvestor and our director of equity income strategy, to take a closer look.

Josh, thanks for joining me today.

Josh Peters: Good to be here, Jeremy.

Glaser: We've spent a fair amount of time talking about the best way to buy dividend-paying securities, but how do you think about the best way to exit one of these positions?

Peters: You're right. Selling doesn't get as much attention, but it probably should get twice as much attention because it’s twice the decision-making. Typically, if you’re selling one stock, you’re also going to be buying something else. It might be another stock or another asset for your portfolio or perhaps you are moving the money on such as if you're buying a car, a house, kids' college education, or something like that. So, it is complicated.

I'd start with the personal-financial decisions that you might have to make. If you need money from your portfolio, you have some withdrawal that you have to make, money you need to take out in the next couple of years--that money shouldn't be in the stock market in the first place.

If you have, for example, specific debt that's coming due or something like college tuition, scale that money out of the market early. Don’t leave yourself vulnerable to having to sell your stocks at very low prices in order to meet that debt obligation at the last minute.

But if the money is staying inside your portfolio, then I tend to think of two kinds of sales. There are defensive sales, and there are offensive sales.

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