When to Sell
Selling discipline is arguably the hardest part of income investing. A stock with a long track record of reliable dividends can be emotionally difficult to sell — there is a natural tendency to hold on, expecting it to recover. The criteria framework removes this emotional attachment by providing objective, pre-agreed signals.
Watch versus sell
When one or more sell criteria are triggered for a currently owned stock, it receives a watch signal ☞. This is not yet a sell decision — it is a prompt to monitor the situation closely and reassess at the next reporting season or dividend announcement.
A sell signal ☻ occurs when a watch condition exists and a qualifying replacement stock exists with a higher grossed-up yield (criterion 15). Without a better alternative, holding and watching is usually preferable to selling and parking in cash — unless the grossed-up yield has fallen below your Cost of Funds, in which case repaying debt is the superior option.
When no qualifying stock exists, the home loan is the investment. Repaying debt at 5.79% pa is a guaranteed, risk-free, tax-effective return. It is better to wait with reduced debt than to buy a stock that only marginally clears the 11.13% pa grossed-up hurdle.
Temporary versus structural deterioration
Not all capital losses or yield reductions are equal. The sell decision depends heavily on whether the cause is temporary (hold and monitor) or structural (sell).
HVN Harvey Norman — retail sector impacted by geopolitical uncertainty affecting supply chains. Strong long-term track record, significant capital gain (+23%), management credibility intact. Grossed-up yield marginally below 11.13% pa target. No qualifying replacement available (criterion 15 not triggered). Decision: watch list, reassess at next reporting season.
NHC New Hope Corporation — coal faces structural long-term decline in dividend-paying capacity. Forward grossed-up yield (5.77%) had fallen below Cost of Funds (5.79% pa), meaning the stock was generating less income than simply repaying debt. Capital loss of −9.7%. Criteria 13 and 14 triggered simultaneously. Decision: sell all, return capital to home loan.
The DivShock signal
A DivShock occurs when a company announces a dividend significantly below what historical patterns would have led you to expect — a sudden, unexpected cut. This is an early warning that the company’s earnings may be deteriorating faster than analysts had forecast.
DivShock does not automatically trigger a sell decision, but it requires immediate scrutiny: read the full results announcement, listen to management commentary if available, and check whether analyst earnings forecasts have been revised downward. It is incorporated as an additional flag in the “Meets Criteria” scoring.
YAL Yancoal Australia — experienced a DivShock when its most recent dividend came in significantly below the expected amount based on prior payments. Combined with coal sector headwinds and criterion 13 being triggered (grossed-up yield below 11.13% pa), this accelerated the sell decision. All YAL shares were sold on 19 March 2026.
The “smiley price” — finding the right entry for a replacement
When considering recycling capital from a sold stock into a replacement, it is essential to calculate the maximum buy price at which the replacement stock meets all buy criteria simultaneously. This prevents switching from an underperformer into an overpriced one.
For most ASX stocks, the binding constraint is the capital gain criterion — the stock must be trading sufficiently above your buy price to show a gain of at least 4.70% pa. The maximum “smiley price” is approximately:
Smiley Price = Current Market Price ÷ (1 + 4.70%)
If the stock is trading above this level, patience is the correct response. Wait for the price to fall, or wait for the next dividend announcement to confirm the forward yield before committing capital.
Capital Gains Tax considerations
Before executing any sell decision, check the CGT implications. Australian residents may be eligible for the 50% CGT discount on assets held for more than 12 months. For holdings with a significant embedded capital gain, it may be worth delaying the sale until the 12-month threshold is reached, or until a financial year where your other income is lower.
For holdings in a capital loss position, the loss can be used to offset capital gains elsewhere in the portfolio. This is another reason to maintain a CGT tracking worksheet alongside your portfolio management system.