Dividend Growth Stocks: When To Buy And Sell

The underlying principle of dividend growth investing is simple: buy stocks that pay increasing dividends every year. It would seem as if you are able to collect a risk-free check that only gets bigger every year that is independent of the market or fluctuating share price of your holdings. Dividend growth investors realize that this is not true as they try to determine which companies have long-term earnings stability and growth. But can we take this a step further? What role does valuation play in our decision-making process as when to buy and sell various holdings?

Timing Purchases With Valuation: Some investors would just hold tight thinking that the price increase is a feel-good buffer that adds a level of security in case of a future market crash. They continue to hold what they view as a winning stock that still offers 50 cents per share dividend. Creating a Dividend Growth Strategy With Valuation Timing: Let's take a look at a dividend growth strategy that incorporates rotating holdings based on valuation. Our investable universe is derived from the holdings in the S&P 500 High Yield Dividend Aristocrats Index (SDY). These are 50 of the highest yielding constituents of the stocks of the S&P Composite 1500 index with annual dividend increases for at least the past 25 years.

Source: Seeking Alpha

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