Strategy 4: Dividend + Technical
Combine fundamental dividend investing with technical timing for long-term wealth building.
When to Use
Long-term investing with better entry timing
This strategy is for investors who want to:
- Build passive income through dividends
- Hold positions for years
- Use technicals to optimize entry points
Stock Selection (Fundamentals)
Before applying technicals, the stock must pass fundamental criteria:
| Criteria | Target |
|---|---|
| Dividend Yield | > 2% |
| Dividend Growth | Consistent increases |
| Payout Ratio | < 60% (sustainable) |
| P/E Ratio | Reasonable for sector |
| Debt/Equity | < 1.0 |
Quality Dividend Stocks
Look for:
- Dividend Aristocrats - 25+ years of dividend increases
- Dividend Kings - 50+ years of dividend increases
- Strong moat - Competitive advantage
Entry Signals
Once fundamentals are confirmed, use technicals for timing:
| Signal | Weight | Description |
|---|---|---|
| RSI < 40 | High | Not overbought |
| Price near EMA 200 | High | At long-term support |
| Price in lower half of 52W range | Medium | Good value |
| Ichimoku near cloud support | Medium | Technical support |
| Stochastic < 50 | Low | Not extended |
Ideal Entry Setup
✅ Fundamentally sound (dividend, P/E, debt)
✅ RSI < 40 (not overbought)
✅ Price near EMA 200 support
✅ In lower 50% of 52-week range
✅ No Death Cross
Exit Signals
For dividend stocks, exits are different:
| Signal | Action |
|---|---|
| Dividend cut | Exit immediately |
| Fundamentals deteriorate | Exit |
| Death Cross | Review position |
| RSI > 80 for extended period | Consider trimming |
| Price 50%+ above EMA 200 | Consider trimming |
When NOT to Sell
- Short-term price drops (buy more!)
- Market corrections (opportunity)
- RSI temporarily overbought
Position Sizing
Full position for long-term hold
Core Position: 100% of intended allocation
Add on Dips: When RSI < 30 and fundamentals intact
Risk Management
| Parameter | Value |
|---|---|
| Stop-Loss | Below EMA 200 (or fundamental stop) |
| Take-Profit | Rarely - hold for income |
| Max Allocation | 5% per stock, 25% per sector |
| Rebalance | Annually |
Example Trade
Stock: JNJ (Johnson & Johnson)
Dividend Yield: 3.0%
Dividend Growth: 60+ years
P/E: 15 (reasonable)
Technical Entry:
- RSI: 35 (not overbought) ✅
- Price: $155 (near EMA 200 at $152) ✅
- 52W Range: 30% (lower half) ✅
Entry: $155
Stop-Loss: $145 (below EMA 200)
Hold: Indefinitely (collect dividends)
Annual Income:
Position: $10,000
Dividend: 3% = $300/year
With DRIP: Compounds over time
Dividend Reinvestment (DRIP)
Reinvest dividends to compound returns:
Year 1: $10,000 × 3% = $300 dividend
Year 2: $10,300 × 3% = $309 dividend
Year 3: $10,609 × 3% = $318 dividend
...
Year 20: $18,061 × 3% = $542 dividend
Total value after 20 years: $18,061
(from $10,000 investment, dividends only)
Combining with Other Strategies
| Market Condition | Action |
|---|---|
| Strong uptrend | Hold, don't add |
| Pullback to support | Add to position |
| Major correction | Aggressive buying |
| Bear market | DCA (Dollar Cost Average) |
Next: Position Sizing →