When to Sell Dividend Stocks and How to Do it

Contrary to the popular belief that you may want to keep dividend stocks around forever, there may come a time when you actually want to sell your dividend-paying stocks. Even the best dividend stocks might end up deserving a spot on your “to sell” list.

Let’s take a look at when to sell dividend stocks (and why you might not want to sell them) as well as go over the “how-tos” of selling dividend stocks. By the time you’re done reading, you may have a better idea on whether investment advice to hold on to your stocks might not make the most sense in the long run.

7 Reasons to Sell Dividend Stocks

Why might you want to sell dividend stocks? There are several reasons why you might want to make this type of investment decision even though you’ll forgo dividend payouts over time. There are both personal reasons and extrinsic reasons why you may want to skip selling dividend stocks despite regular dividend income.

1. You Need the Money

Put simply, there’s a reason you invest, and that’s to tap into money for later use. If you’ve been enjoying the fruits of cash dividends for years but need more than just the cash dividend to sustain you, you may want to consider selling a dividend stock. This isn’t to say that you won’t have other dividend stocks available in your portfolio — you might have other high-yield dividend stocks available to you as a backup.

Whether you plan to buy a second home, pay off some debt or want to buy the car you’ve always wanted, as long as your investment portfolio has earned what you thought you’d have earned, go ahead and sell.

2. You Want to Reduce Risk Exposure

As part of a comprehensive portfolio management strategy, you might want to mitigate the risk exposure you have in your current portfolio. If you’re ready to retire soon and are uncomfortable with the heavy concentration of stocks in your portfolio, you may want to sell some dividend stocks and shift some of your money into bonds, mutual funds, index funds or other types of more diversified assets. Growth stocks have their time and place, but by the time you reach a certain age, you may want to ease into a more risk-averse portfolio.

3. A Competitor Announces Bad News

What’s the best way to know whether something is amiss in a particular sector? Yes — if one company tumbles, the others may follow. If you happen to own shares of stock in a particular company and have been experiencing dividend growth, a different company in that same sector could be experiencing struggles. Don’t always chalk it up to bad management within that specific company. The entire sector could see struggles, so consider selling before the company you’re invested in gets hit (unless, of course, you’re 100% sure “your company” is immune.)

4. After a Dividend Cut

Is a dividend cut coming down the pipeline? If the dividend payout ratio of a particular company has dwindled (and will continue its excruciating slow quarterly dividend burn), consider getting out. However, you might want to make sure that the stock itself is still experiencing returns. There’s no point in selling if you’ll lose money.

Note that if you sell your shares before the ex-dividend date (ex-date), or the the last day in which you can buy a share of stock and receive its upcoming dividend payment, you’ll no longer be entitled to get the company’s next dividend payment.

However, if you sell your shares on or after this date, you’ll still receive the dividend. Keep this in mind even if dividends are going through some volatility. You might want one last chance to receive the amount of the dividend before you sell.

5. Once Company Fundamentals Change

It’s always good to understand the metrics behind the stocks you own. If sales and earnings are slowing, cash flow isn’t coming in, higher costs, lower margins, increased competition or valuation has signaled the death knell for the company you’ve been collecting dividends from, you may want to sell.

The quarterly earnings report can help you decide whether you should do so because it will show you earnings misses or downed sales and earnings on the balance sheet. Before you act drastically, try to determine whether the company has faced a temporary or permanent fundamental shift. You can always exit and buy it back later, particularly if you’ve liked the dividend yield it has offered thus far.

6. As a Result of Credit Downgrades

Sometimes, rating agencies downgrade companies and therefore, a company’s formal credit rating gets cut. A downgrade is a negative change in the rating of a security, and analysts believe a company’s future prospects have weakened due to a material and fundamental change in the company's outlook. Debt may also experience a change as well. For example, they may assign letter grades to debt. For example, a company may go from an "A" rating to a "BBB" rating.

7. Rising Dividends Occur for All the Wrong Reasons

Businesses that start having trouble with earnings growth or other money woes will usually scramble to look for ways to continue to pay their investors dividends. Companies may try to cut costs by using money that they should be using for their basic day-to-day routines. For example, a company may clamber to sell shares to support dividend payments.

What happens then? As you might not suspect, a company’s dividend yield then looks more interesting to investors who fail to take a look at the underlying fundamentals of a company. Investors who know their way around a calculator can see that the dividend yield is rising, just as the company’s stock price is falling. In many cases, companies can’t keep up with these high-yield payouts and are forced to slice the dividend.

Are there other reasons besides these five that you might want to sell your dividend stocks? Of course. Just make sure you understand your own proclivities and whether you’re actually more well suited to a buy-and-hold strategy. The last thing you want to do is to sell your stock in response to short-term stock market fluctuations or company news that’ll be forgotten after a week.

Learn more: Why Buy Dividend Stocks?

How to Sell Shares of Dividend Stocks

Once you’ve made absolutely sure that you’re not selling your shares due to an involuntary impulse to the whims of the markets and understand that the dividend stock value could well increase, here’s how to sell your shares of dividend stocks.

First, decide on an order type. You want to limit losses when you sell your dividend stocks, so it’s imperative to understand the different order types. Let’s take a look at market order, limit order, stop (or stop-loss order) and stop-limit order.

• Market order: A market order is a request to sell a stock right now — you want to sell it no matter the price.
• Limit order: A limit order is a request to sell a stock only at a specific price or better. If you can’t sell at or above the price you want, you’ll keep the security.
• Stop (or stop-loss) order: A stop or stop-loss order is a market order that is executed only if the stock reaches the price you set for the trade. You’ll sell if a stock drops to or below a certain price.
• Stop-limit order: A stop-limit order combines two types of orders: a stop order and a limit order. If your stock drops to the stop price, a limit order goes into effect, but only if you can sell at or above your limit price. In other words, you sell when the stock drops to a certain price, but only if you can sell the stock you own for a minimum amount.

Next, a broker like Fidelity or another trading platform will give you a trade ticket or order. The trade should land in your account just two business days after the date the order executes.

Learn more: Top Dividend Stocks and How to Invest in Them

Should You Sell Dividend Stocks?

Many dividend investors and experts (including financial advisors) see the benefits of high dividend potential and the other perks involved in dividend investment strategies and assume that investors should want to hold onto dividend stocks forever. However, as with most stock picks and in learning the ins and outs of stock trading, it’s important to consider all sides of the reasons that people invest and some basic principles that every good dividend investor should hold close.

Regular income from a dividend stock can have lasting benefits, but that doesn’t mean a particular stock will stay in favor forever. Things like fundamentals, your own personal risk tolerance and timeline, bad news from rival companies and more can affect your investments.

Know the signs so you know when companies you invest in show signs of drowning and protect your portfolio. Remember, there are other fish in the sea in the form of other dividend stocks.

About Melissa Brock

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Experience

Melissa Brock worked as an associate editor & contributing writer for DividendStocks.com from 2021 to 2024.

She currently works as a full-time freelance writer and financial editor covering higher education, investing, personal finance, mortgages, college savings, insurance, and more. 

Areas of Expertise

Dividend Stocks, Retirement

Education

Bachelor of Arts in Communication Studies, Central College, Pella, Iowa

Past Experience

Melissa graduated summa cum laude with a bachelor of arts in communication studies with minors in psychology and Spanish from Central College. She's a longtime member of the National Association of College Admission Counseling (NACAC). While working in college admission, Melissa Brock pursued a freelance writing and editing career.