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Investment Analysis Clubs / The BMW Method


Subject:  Re: A learning curve Date:  9/11/2012  3:04 PM
Author:  kelbon Number:  40709 of 42250

Such stocks won't be sold -- in fact, they shouldn't be sold, since they will be needed to provide the income stream.

Although I empathize with this statement, I think this approach will not serve as well as a more flexible approach. Sometimes good companies that pay steady, rising, and predictable dividends see their stock prices increase substantially. The stock price goes up, the dividend yield goes down. Of course, this doesn't affect your income from those dividends, but it often presents opportunities elsewhere for you to increase your income from dividends. In other words: sell the winner with its now diminished dividend yield if you can find a relative bargain that is of modest value and has a meaningfully higher dividend yield than the stock you are selling.

As a real world example, imagine you bought Wal-Mart for its dividend yield at $45 a share and over a couple of years it rose to $73 a share, which it has. If you sell your Wal-Mart shares you can take your profits and now buy shares in a company whose dividend is yielding considerably more than Wal-Mart's is at the current stock price.

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