Dividend Investing for Income and Growth - Preserving Wealth

[Pages:145]Dividend Investing for Income and Growth Stuart Chauss?e

DIVIDEND INVESTING FOR INCOME AND GROWTH

This publication contains the opinions of its author and is designed to provide useful advice in regard to the subject matter covered. However, this publication is offered with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, investment, tax, estate planning or other professional service. If legal, investment or other advice is required the services of a competent professional should be sought. The author and publisher specifically disclaim any responsibility for liability, loss or risk, personal or otherwise, that is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book. Notwithstanding anything to the contrary set forth herein, the author, his officers and employees, affiliates, successors and assigns shall not, directly or indirectly be liable, in any way, to the reader or any other person for any reliance upon the information contained herein, or inaccuracies or errors in or omissions from the book, including but not limited to financial or investment data. Printed in the United States of America - 2015 - Stuart Chauss?e - All rights reserved.

- 2 -

DIVIDEND INVESTING FOR INCOME AND GROWTH

Dividend Investing for Income and Growth

Contents

Introduction

5

Why own dividend stocks?

8

Dividend stock primer

15

Yields and Ratios

20

What to look for in a dividend stock

30

Dividend Growth Achievers

34

How to build a portfolio of Dividend Growth Achievers 48

Top industries to hunt for dividend stocks

52

How to structure a low-beta dividend portfolio

59

How to build a high dividend growth portfolio

64

Dividend Growth Achievers for monthly income

70

Exchange-Traded Funds for dividend investors

73

International Dividend Growth Achievers

84

Real Estate Investment Trust -

Dividend Growth Achievers

93

When to sell a dividend stock

99

- 3 -

DIVIDEND INVESTING FOR INCOME AND GROWTH

How to manage your portfolio to control risk

107

Reasonable return expectations

116

Strategies for safe portfolio withdrawals

120

Investing quotes

133

Bibliography and recommended reading

142

Recommended Web sites

145

- 4 -

DIVIDEND INVESTING FOR INCOME AND GROWTH

Introduction

Current yield + dividend growth = the holy grail of investing.

WHEN ADVANCED PORTFOLIO MANAGEMENT: Strategies for the Affluent was published in 2002 I felt it was a pretty timely offering. We were in the middle of an Internet/tech bust that brought down major market indices by nearly 50% and the techheavy NASDAQ by more than 70% from peak-to-valley. The book earned praise from Barron's calling it "one of the best investment books of the year" and "a book aimed mainly at seasoned investors, though it describes complicated issues clearly and simply and gives advice that might be useful to both pros and amateurs." However, when I review my work it is obvious to me how much an additional 13 years of experience managing money has improved my understanding of markets, risk and investor behavior. Most importantly, perhaps, is how dividend stock investing has vastly improved cash flow and risk control for my clients. I firmly believe that dividend investing for current yield and dividend growth greatly improves on strategies used by traditional active managers or indexers. In the boom and bust world we live in, with market bubbles being created at a far faster clip than math (standard deviation of

- 5 -

DIVIDEND INVESTING FOR INCOME AND GROWTH

returns) and history would suggest, it is apparent that if a manager doesn't focus on controlling risk and improving cash flow in a portfolio, returns will suffer. The approach I have adopted that fits both criteria, is focused on dividend investing in blue-chip stocks that not only pay healthy and rising dividends (much needed in today's low-yielding environment), but also typically exhibit much lower volatility than the market itself.

Wall Street loves to market and promote investment strategies that capture the attention of the investing public in an effort to attract assets and earn commissions and fat fees. Unfortunately most of these "sophisticated" efforts fail over time. Options strategies, futures, growth or momentum investing, hedging strategies ? all have failed miserably at some point over the past 20 years or more. The strategy that has endured and even flourished, has been investing for dividends. While it is certainly not exciting, I know of no other investment approach that can compete with dividend stock investing for risk-adjusted returns and cash flow on a total return basis. Indeed, when you consider that over 40% of the stock market's returns over the last century have come from dividends, strategies that ignore the cash flow portion of the equation, offered by solid dividend payers, have a tough time competing in both good and bad markets.

In the nearly 30 years I have been advising and/or managing money, I can clearly recall with delight each time a new client came to me with an inherited portfolio of dividend payers that their parents or grandparents had started some 30 or 40 years ago with a small sum of $10,000 or so. Many of the holdings are now worth $500,000 to $1 million or more thanks to the compounded growth of reinvested dividends. Stocks like Johnson & Johnson, Altria, Wal-Mart, Exxon Mobil, Abbott Labs and Coca-Cola ? small investments in these companies a few decades ago are now worth a bundle ? thanks to dividend reinvestment and price appreciation. This simple approach to investing for income and

- 6 -

DIVIDEND INVESTING FOR INCOME AND GROWTH

growth with dividend stocks that has been successful for many decades is still attractive and viable today.

In Dividend Investing for Income and Growth, I will show you how to create, manage and monitor a portfolio of dividend stocks that will give you the cash flow you need to supplement your income and also allow for moderate growth. This approach is most appropriate for investors nearing retirement or already in retirement although I believe it makes sense for nearly all investors, regardless of age. In addition, I believe my investment approach, coupled with an understanding and recognition of risk and cycles, will help you avoid many of the pitfalls that face buy-and-hold investors and convince you to reduce risk at market extremes. In other words, you will learn to adjust your portfolio and reduce volatility and risk when necessary, particularly during market bubbles, and increase your allocation during bear markets or crashes. The bottom line is to avoid as many investing mistakes as possible and ultimately earn a better risk-adjusted return than you would with an indexed or more traditional active management approach. And, avoid or reduce risk as much as possible when others are ignoring it.

Dividend Investing for Income and Growth is not an investment manual, rather, it is a statement of my investment philosophy and strategy that I believe can help keep you on track for a lifetime of successful income and growth investing. Hopefully you will find the content thought provoking as it forces you to consider the advantages of dividend growth investing with the objective of outpacing inflation, taxes and portfolio withdrawals in retirement.

- 7 -

DIVIDEND INVESTING FOR INCOME AND GROWTH

1 Why own dividend stocks?

The consistency and dependability of the dividend is what should attract you to a company.

THERE IS NOTHING QUITE AS ENJOYABLE, in my practice, as when I download the prior day's account activity into my portfolio management software and see a large quantity of dividends paid to my clients. Indeed, payday is a beautiful thing. Getting paid is why we invest in companies and we can get paid in two ways. We can earn a capital gain on an investment if the price rises ? you buy it at $25 and if all goes well the stock hits $50 some years later ? terrific ? that's called an unrealized gain. If you subsequently sell the stock it becomes a realized gain. The other way we get paid is more predictable and consistent than the stock price ? this is payment in the form of a dividend. Dividends are typically paid on a quarterly basis and are determined by the board of directors of the companies you own. As an investor, when you own a dividend-paying stock, you are indeed an owner and are entitled to a portion of the net profits

- 8 -

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download