Yield On Cost And A Selling Decision

When and whether to sell dividend growth stocks is a recurring topic in the dividend growth community at Seeking Alpha. Reasonable minds can differ but, normally, yield on cost (YOC) does not play a major role in the decision. That may sound odd coming from me, given my history of defending YOC as a useful metric. It is true that I think YOC is useful, but not very much when it comes to selling. Here's why:

When you are deciding whether or not to sell, your primary view is looking forward. YOC looks backward and right up to the present moment, but it does not look forward. YOC is like a statistic on the scoreboard. It is important, because it tells you what the score is in your program to build a healthy dividend stream from your purchase of a stock some time ago. But YOC is not of much use with a selling decision. I would suggest that the only reason to consider selling a dividend growth stock is to improve your portfolio along some dimension or metric that is important to you.

Source: Seeking Alpha

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