“Buy low and sell high” is the mantra of a lot of investors, but is less often adhered to by dividend investors who tend to subscribe to a "buy and hold" philosophy. They tend to be more comfortable holding onto their investments even as they soar in value because the focus is on the income, not the share price.

Indeed, some hardcore dividend growth investors, such as David van Knapp argue that you shouldn't need to sell dividend stocks ever!

Why is that? van Knapp makes an interesting point is that:

 "under conventional retirement planning, one accumulates assets during his or her working years, then begins selling assets upon retirement to provide "synthetic" income, meaning that it is not generated naturally by the investments themselves".

The rate at which an investor sells down assets is then determined by things like the 4% Rule,  a rule of thumb (created in 1990s by Bill Bengen, a financial adviser) which argued that, if you spend 4% of your capital in your first year of retirement, you can go on spending that much until you die.

Unfortunately, as many people have found out, this kind of thinking makes dubious assumptions about longevity and market returns, which are increasingly questionable due to uncertainties over inflation rates, stock market downturns and health care bills.

Instead, van Knapp suggests that the better approach is to sell nothing at all, ideally. Instead, the dividend income generated naturally by the assets should be all that is removed from the investment account (although that actually still has the same issue of matching certain cashflows to uncertain liabilities). On this view, price falls (or even a bad economy) should pose no particular threat, because there is little correlation between dividends and stock prices.

While a "Buy-And-Hold" approach to dividend investing may have some merit, it's worth stressing that this does not excuse "Buy-And-Forget" – a better approach is likely to be “Buy, Hold & Monitor”. Dividend investors need to keep a close watch on their investments to ensure that their dividend income stream remains intact. Things may change in an uncertain world and adjustments must be made from time to time.  Purist "Buy and hold" also isn't really practical if you have pressing & unexpected liquidity needs that exceed your current/planned income.  

With that in mind, here is a "sell signal" checklist of…

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