Dividend versus share value

[bazzabear]

What would be the tipping point for you, to decide to sell shares rather than keep them for the dividend?

I have some shares which I got as part of bonus from a company I used to work for. I've been happy to keep hold of them for the dividend until now, with the annual yield typically being around 5-6%.

But the share value has shot up in the last year or so, so yield (by directly comparing last two 6-monthly dividends to share price) is now less than 2.5%.
Or to put it another way, if dividends stayed the same, it'd take me about 36 years to make what I'd get by selling them now.

 

[The_Abyss]

https://forums.overclockers.co.uk/threads/trading-the-stockmarket-no-referrals.17994081/

 

[Abyss]

Comparing how many years of dividend you'd have to make to get the equivalent of selling the shares is an odd way of looking at it. After 36 years of dividend payments you'll still have the shares, selling now means you won't.

I'd be looking at whether I can make the money invested in shares work harder for me elsewhere. Given interest rates are very poor at the moment, earning 2.5% on your investment isn't bad, particularly if the shares are rising.

The more important question is whether you think the share price will go up or down.

 

[Simon]

Cant get my head around that logic. After 36 years you will have the same money AND still have the shares to sell

plus the yield is based on what you paid for them. So even if the price goes up you are still getting 6% on your investment. You aren’t getting less return

 

[bazzabear]

Cheers guys. What I was trying to compare was benefit to myself (which is why I'm comparing yield to current value rather than purchase value, which was variable acorss multiple bonus years anyway). Admittedly the sale versus dividend thing is not really representative, it was just a way of considering it.

But your answers are definitely helpful. The share price has been on a general upwards trajectory for over 5 years now, so I think there's sense in keeping hold of them. (It's AZN in case anyone wondered.)

Just the sudden surprise at checking the share price and finding it twice what I last saw got me overly excited.

 

[Psiko]

You are suffering from endowment bias! This means that you think differently about whether you should own them because you already do. Put another way, if you didn't already own them would you go and buy them now or do something else with the money?

It really depends on how much we're talking. If it's a small amount and you are interested in following the company (which you may well be if it's a previous employer) then why not keep hold of them. Plus there are costs associated with selling.

If it's a larger amount and you still want the equity exposure then you're probably best rotating them into a diversified equity tracker. Ignore dividend versus capital gain as, aside from tax treatment, they have the same effect to you. All other things equal, when a company pays a dividend, it's share price should go down to reflect the cash leaving the company.

 

[GordyR]

Comparing how many years of dividend you'd have to make to get the equivalent of selling the shares is an odd way of looking at it. After 36 years of dividend payments you'll still have the shares, selling now means you won't.

This... I think @Abyss summed it up in his/her first post personally.

 

[Abyss]

It's AZN in case anyone wondered.

I'm really not sure what I'd do with shares in AstraZeneca. Pharmecutical companies are performing well due to COVID19 and it's share price is at an all time high with a clear upwards trend. On the flip side who knows what will happen over the next year once companies start to find cures, I'm sure there will be big winners and losers.

 

[tlrBeta]

Comparing how many years of dividend you'd have to make to get the equivalent of selling the shares is an odd way of looking at it. After 36 years of dividend payments you'll still have the shares, selling now means you won't.

I'd be looking at whether I can make the money invested in shares work harder for me elsewhere. Given interest rates are very poor at the moment, earning 2.5% on your investment isn't bad, particularly if the shares are rising.

The more important question is whether you think the share price will go up or down.

This is a good post.

Of course, if you need the money - then the above question on rise or fall comes in.

Ps. If you got these as part of a bonus and don't need the money, you're getting a free extra bonus, each year, via dividends!

 

[bazzabear]

I'm really not sure what I'd do with shares in AstraZeneca. Pharmecutical companies are performing well due to COVID19 and it's share price is at an all time high with a clear upwards trend. On the flip side who knows what will happen over the next year once companies start to find cures, I'm sure there will be big winners and losers.

Exactly!

The thought of them suddenly dropping and me losing that (potential) money is alarming. But then isn't selling out now and finding out that the upwards trajectory continued?

Given that, on balance I think the most relevant advice on here has been your own - "can the money work harder for you elsewhere". The answer to that is no, so I think it can stay in the shares.

To make complete the picture of me not having a clue about these things, one final question (although it's academic given that decision):

If you sell a load of shares in a single year, is there a tax implication? Does that count towards your income?

 

[tlrBeta]

If you sell a load of shares in a single year, is there a tax implication? Does that count towards your income?

Simple answer is yes

However, you have a capital gains allowance to use before you pay any tax. Which recently moved to £12,300 (i remember it being £10k). You can also avoid this by using a stocks and shares ISA

A lot of info on the gov tax website

 

[bazzabear]

Cheers!

 

[Simon]

Also potentially you have to pay tax on dividend income too. Good reason to use /move things into a stocks and shares isa.
No CGT and no dividend tax