Investment insider: Don't sell in May if you want to reap your dividends

 

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The Independent Online

According to an old stock market adage, May signals the time of year when we should sell our shares and go away. The rest of that old saying tells us not to return until St Leger Day (in September).

So should you sell your shares this month?

Yes, but only for the right reasons. In general, we should review our investment portfolios regularly, and weed out shares that no longer meets our investing theses. Consequently, we should be ready to sell shares regardless of the time of year.

That said, there does appear to be some superficial evidence to suggest the period from May to September is not especially scintillating for shares.

Over the past 28 years, shares have fallen on 14 separate occasions during the summer months.

The declines have ranged from an almost insignificant drop of 0.4 per cent in 1985 to the more severe slump of some 26 per cent in 2002. Taken as a whole, the average performance between May and September is an uninspiring minus 0.5 per cent.

So there is some weak evidence to suggest that holding shares over the summer months is not that lucrative.

Things could be even worse this summer with Europe in turmoil. The yield on Spanish bonds is perilously close to 6 per cent as the country copes with recession, rising unemployment and looming budget cuts. Speculation is also rife about a second Greek bailout.

There are indeed plenty of reasons to be concerned this summer. However, here is one reason why I stay invested – dividends.

You see, many quoted companies, report their annual results in February. Consequently, they distribute their largest dividends of the year just after spring. In fact, many final dividend payment dates are clustered between May and August. So, if you hold a reasonably diversified portfolio your final dividend income is going to be during the months when the old adage tells us to sell.

Therefore, before you decide to sell in May, ask yourself if you are prepared to sacrifice long-term, total returns based on nothing more than some Victorian stock market adage that has no place in today's modern society.

As for me I am happy to stay invested and reap my healthy crop of dividends.

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