My mental image of the stock market is similar to one of those fairground carousels with ornately carved horses riding up-and-down as well as round-and-round; each horse follows a cycle of being high then falling, being low then rising. My strategy is to ride the horse to the top and then shift to one that is beginning to rise. What goes around comes around. Pretty simplistic eh!
So what encouraged me to sell this time?
Shares that pay good dividends do not usually fluctuate wildly in price. This lack of volatility is generally a 'good thing' as it leads to a more stable portfolio. However, when the price rises significantly, you must consider what is more important to you: capital gain or increased income. In the case of a DIY Income Investor, the answer is pretty clear: income!
As I outlined previously in 'When to Sell a Dividend Share', I will consider selling a dividend share when:
- the capital gain is more than 5 years' income (based on the current dividend)
- the yield has fallen below below my portfolio average (or the FTSE average)
Or preferably both.
In this case my holdings of GSK (GlaxoSmithKline) and VOD (Vodafone) had increased by around 30% and the 'dividend years earned' were both over 5 years. In my mind, I have therefore already earned 5 years' worth of income from these shares.
Moreover, given the current turmoil in the markets, there are a lot of opportunities for investing for income with the proceeds at the moment - hopefully boosting my overall income.
The downside of this transaction is that both of these are good solid HYP (high yield portfolio) shares but I may have the opportunity to buy back in if the price falls in future. In the case of GSK I still hold another parcel of shares that has not yet performed so well.
Sale prices: GSK: £13.76; VOD: £1.77
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.