I follow a high dividend / high risk investment strategy.* It gives me an average 8% dividend yield on my portfolio. One would think that should be enough. It must not be, though, because I actively work my portfolio to realize profits from stock sales.** The question is whether all the time and work that takes* is worth it -- or whether I would be better off letting the stocks just ride, collect my dividends and free up all that time. Here is how that shakes out.
Selling a stock can lose me its dividend. That happens because I sell the stock while the next quarterly dividend is still pending. In the worst cases, I sell a stock just days before that quarterly dividend would have been locked in. So, for all my extra work to make sense I need to end up better off selling the stocks than holding them and collecting the dividends.
Buying and selling stocks takes work. There is a set amount of work I do every week to stay on top of my stocks***. That much I have to do whether I hold the stocks or sell and buy them. But there is extra work to do if I do not hold the stocks. Because, when I sell a stock, I have to find something else to buy with the money from the sale. And going through that search process* takes me 6 to 8 hours a week. I would not have to do that work if I left my portfolio alone and just sat back and collected dividends.
But the extra 350 work hours a year do pay off. In 2013, my portfolio's average dividend yield was 7.9%. IF I had left my portfolio (and my wife's, which I also manage) alone, the 2 portfolios would have collected around $56,000 in dividends. Because I sold and bought stocks instead, they only collected $49,090 in dividends. But I more than made up for that $7090 dividend "shortfall" by realizing $43,470 in profits from sales. And that means the net extra profit from buying and selling was $36,560.
That is more than $104 an hour for my labor. And that is four times my preretirement hourly wage! So I do think I will keep on actively working our stock portfolios. Doing the work and not being a passive investor makes financial sense to me.
* My High Yield, High Risk Investing:
** What Makes Me Sell a Stock?:
*** How I Stay On Top Of My Stocks: