Yield lessons;

So, I'm finally convinced. I can think of 3-4 holdings that were in the high-dividend category that have cut dividends and I've been burned...Otelco, Frontier Communications, CenturyTel Telecom of New Zealand. I got out of Annaly Capital, Windstream, a few others...

I think it's time to dump all the rest: I don't have many left with yields over 5%.  Since I don't have an automated way to see the payout ratio and rate of change in payout ratio, I'm vulnerable to changes in company operating status that cause management to change their dividend policy.  It's not the dividend cut that hurts: it's what the dividend cut does to the value of the position. After all, I'm buying earnings and dividends. If earnings drop and dividends are cut, then I have an investment of deteriorating value. The stock price may follow in lock-step, or suddenly and precipitously when the dividend is cut. Dividends are cut by policy, not by a daily vote on the company value by the market.

I need to change the way I monitor the portfolio;  The very first thing I should look at is earnings per share. Then I should look at the percentage change in earnings per share over the preceding year, 3 years, 5 years and 10 years.

After that, I should look at the dividend yield. I should look at the change in dividend payment over the preceding 1, 3, 5 and 10 years.

I should look at the payout ratio; it should stay within a reasonable range.  i should then look at what the company did with profits not paid out to shareholders; stock repurchase, capital investment, etc.

I'm in a state of conflict over the DRIP versus targeted re-investment issue; right now I'm DRIPing.
I like seeing each position gain shares on a steady basis. I'm not sure I'd like the pressure to make new investment decisions frequently with accumulated dividends. I'm also not excited about having chunks of cash sitting around that aren't "at work". However, I have been handling the issue of re-investment using cash covered puts for companies of which I'd be happy owning more shares. Out-of-the-money puts generally simply yield more cash. In-the-money puts can result in purchase with a little put-premium bonus.  Selling the put means the cash is at work.  That could be a good reason to turn off the DRIP, because the put premium is often larger than the next dividend. However, that means no participation in price appreciation if it occurs. Also, it requires constant attention to find, analyze the options.

I find that I don't like selling covered calls all that much. I don't like the long-duration calls. I'm selling calls, hoping the position WON'T get called. That puts me into the position of having to buy my way up-and-out if the stock price moves up above the strike price. It turns out that capping my gains and having to buy back into a position isn't what I like about investing. I can't track gains over time because they are broken up into little call premiums and short term gains, rather than a long term gains and share accumulation history.
Puts result in an occasional assignment, but more often the position stays intact and the cash builds a bit.

I guess the state of affairs will continue for a while...I'll continue DRIPing so as to see positions grow, avoid the demand of making larger, more frequent capital allocation decisions. I'll re-position as required when a holding exceeds my 3% (about) rule and then either use the cash to purchase cash-covered puts on positions I'd enjoy growing, or simply purchase new holdings if something looks good. 

It's time to prune out the high-yield companies that are at risk for dividend cuts. I can't stomach the loss in value when those cuts occur. I just need to remember WB's rule number 1; never lose money.

I'm going to go back and re-examine my fast-graphs subscription; perhaps it can show me earnings per share, earnings per share growth, dividend growth, payout ratio for the portfolio.