I don’t plan to sell my dividend-paying stocks. Never say never they say, and who knows what the future will bring. But in the normal course of events, I hopefully likely will never sell most, if not all of, my holdings.
I plan to never sell because I plan not to need the proceeds of a sale. This is because of two reasons. First, I purchased the stock because I wanted dividend income. Second, I don’t plan to need to funds generated by a sale.
That is why I don’t invest with money I know I will need to live on. Long term dividend investing, in my view, is to be done with money I do not need to live on. If I live comfortably below my means, then I can free up money for savings and investment.
Of the money set aside from living below my means, I separate into two parts. One part is for savings for the expected and unexpected, daily living and occasional needs, such as car and home repairs, home improvements, emergency use, vacations, and so on. The second part is what I use for investing.
Which brings me to an important point. **Investing for dividend income is not a replacement for savings.**
Never Sell?
That is, if I don’t need the money. It would be like eating my seed corn should I sell. Selling would eliminate my dividend income.
Another way to say it: I invested in dividend paying stocks to get the dividends, not to sell the stocks.
It may be that sometimes I have no choice. Companies get acquired for cash, and I may be forced to sell some. Or maybe some catastrophic event in my life will necessitate sales. One never knows. Maybe everything will go to hell tomorrow, and maybe everything will become worthless. Maybe, but not likely.
Sometimes I might sell if I am disappointed in a company, its prospects, or the taxation policy of its country of domicile.
Of course if I sell, I would have the proceeds of the sale. And then pay taxes, which would reduce the overall proceeds.
If I don’t need the money, then why sell? The dividends I receive are what enhances my financial life, not the underlying stock prices.
The Longest Term
As the famous saying, “Time in the market beats timing the market.” So I am dividend investing for the long term… the longest term.
My heirs will likely inherit a small bundle. Since what they inherit (according to current tax laws) will have a step-up in tax basis upon my demise, there will be no tax consequences for them to acquire and own these stocks. Then they could benefit from the same dividend investing that gave me my freedom.
But passing along an inheritance is not my primary objective. I did not buy these stocks so I would have something for my heirs to inherit. My primary objective is to provide dividend income for my lifetime. If there is something for them to inherit, well, that’s ok too.
And You?
You should of course, confer with trusted financial and legal advisors. Since I am neither of those things, all can I tell you is my opinion for me, which should not be taken as advice.
Why Buy, Why Sell?
Let’s look at the reason people buy stocks. Most people buy stocks because they hope the price will go up and then they could sell at a profit. So the entire scheme is based on hope. Since no one knows what will happen, especially regarding stock prices, buying stock with the hope to sell later at a profit seems quite a gamble.
Since in my view dividends are far more stable than stock prices, it stands to reason that I am more likely to be assured income from dividends than I am gains from stock prices. I will be the first to admit that my gain from dividends will likely be smaller than many stock trading experiences. However, not everyone wins at stock trading, and I am more likely to experience a gain year after year if I stick to dividends. And I am likely to experience much lower risk by focusing on dividends as opposed to prices.
An Eyeful
I recently had a conversation with a person who trades frequently: buys and sells. When I spoke about my dividend investing, the response I received was that my gains would be too small and too slow for their expectations. Yes, dividend investing has its downsides as mentioned here. Too slow and too small for some. But for me, it is great. Slow and small are some of the benefits of dividend investing.
Why is Slow Good? Why is Small Good?
Slow gains means I am not tempted to over-stretch in investing. Small gains also means I am not tempted to hurry and try to get the next big score. By not chasing yield and not chasing risk, I am offering myself some protection.
Let’s Say It Again, Sam
If I do not plan to sell, than it would also stand to reason I didn’t really need the funds that were used to purchase the dividend stocks in the first place. That is true; I invested money that I ear-marked for this kind of investing. It was not money I needed to live on, nor was it money I used for savings. Since investing of any kind entails various degrees of risk, what I invest should not be money I need to live on anytime soon. If I used money that I needed, then I would not be investing, I would be speculating or gambling.
What I expected to gain when I purchased dividend stocks is the dividends themselves. That’s what I get. So I get what I wanted. Who can beat that?
The Most Important Things About Dividend Investing
In my view, starting early is critical in dividend investing. Adding to one’s holding over time is also extremely helpful; dividend reinvestment helps here, but I also have purchased additional shares over time. Not selling when prices decline means I have the opportunity to buy more at lower prices.
What do you do? Let me know here.
The albumen silver print of Victoria Claflin Woodhull was taken by Mathew Brady, ca. 1870. Victoria Woodhull was the first woman to run for president. The first female stockbroker to open a brokerage house on Wall Street. The first person to publish Marx and Engels’ Communist Manifesto in the United States. And the first woman to address Congress. She was a practitioner of stirpiculture.
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