I believe you have to consider the objectives of the stockholder before determining whether switching out of a lower yielder to a higher yielder is sensible or a good decision or not.
If the person is somebody as described earlier - a young military person with no interest in stocks - then it's not so much that a financial decision to sell is the primary determinant. Because, financial objectives are still being met (wealth accumulated), and yet when to sell, what to buy next, when to sell it again -- all are decisions the person may not wish to deal with and may not need to. Those dividends just keep accumulating and if reinvested and get compounded, the person winds up with something good without having to delve into buy/sell decisions.
As I carry this further, my argument would also be not only don't stop reinvesting back into the stock, but also if the stock seems to be working out okay, not only don't switch, don't rebalance (by switching). I've seen people grow tidy nest-eggs in some stock just letting the dividends get reinvested and keeping on keeping on doing that. So that's colored my experience.
Of course the argument for switching does have merit for somebody following stocks more closely or with an interest in the stock market. Depending on the historical yields of the particular stocks and the overall yield of stocks (the S&P) I might assume the 2% yield stock is where it is because the stock has become relatively popular (the price bid up, so the yield is low), and the 4% stock less popular or
maybe the company is having some business problem (so the stock's down, and thus yield up). A switch like this between good companies (aristocrats say) maybe/might/could be the classic selling high to be buying something that's low. To play this game, I assume the person has to have some tactics to determine when to get in and out. If somebody is doing all that - somebody following the market or a few stocks and sometimes switching into or out of a stock -- well then the person considering retirement maybe should also use some of that energy and interest and knowledge and so go beyond just "dividend stocks for retirement" and spread out and additionally go with growth or other types of stocks where the capital gains possibilities themselves might night add additional and incremental gains vs. stocks just bought for historical dividends.
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My personal experience is that for stocks I've held for a decade or more - it's pretty difficult for me to part with them just because of a bad quarter (stock down) or good quarter (stock up) or because the dividend yields have become small even as dividends themselves have increased. Yes, I understand I can always buy back in, but that just does not happen. (My experience). And if I want to sell down the position, once I start, it becomes ever more easy to sell, which I've done and regretted. Again, all just my experience. Others will have different experience and opinions. |
