When to Sell an Acquired Stock and Cash Out

I have written before that I do not recommend selling stocks in response to a dividend cut. That is because cyclical industries–ranging from industrial conglomerates to the larger firms dotting the energy sector–often need to cut their dividend in response to a commodity pricing slump rather than any difficulty resulting from production. There is also the general issue that dividend cuts are almost always preceded by poor earnings reports, and poor earnings mixed with dividend cuts tends to lead to lower stock prices. There is a substantial risk of selling low and locking in losses if you adopt the policy of selling a stock after a dividend cut.

But merger activity invites a distinctly different scenario–the company you hold is often trading at a 25% to 50% premium price compared to where it was trading before the buyout offer occurred. Contrary to having the risk of selling low, you instead … Read the rest of this article!