How to Make Money in Dividend Stocks

How to Make Money in Dividend Stocks

Edward Page Croft

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This version was published on 2014-09-01

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Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Do dividend strategies work? . . . . . . . . . . . . . . . . 5 1. Dividends and dividend growth provide nearly 80 percent of stock returns . . . . . . . . . . . . . . . 6 2. Dividend reinvestment strategies provide blistering compound gains . . . . . . . . . . . . . . . . . . . 7 3. High dividend yield strategies trounce the market... all over the world . . . . . . . . . . . . . . . . . . . . 8 4. Dividend stocks provide 90 percent of the market return in bear markets . . . . . . . . . . . . . . . . . . . . 9 5. Dividend stocks are a great inflation hedge . . . . . . . 10 6. Dividend stocks are stronger and less volatile . . . . . 11 But it's not all rosy... . . . . . . . . . . . . . . . . . . . . 12

Chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

When do dividend stocks work best? . . . . . . . . . . . . 14 A rough guide to surviving market cycles . . . . . . . . . 14 Dividend stocks ? the only bear market winners? . . . . 16 How to recoup bear market losses dramatically faster through reinvestment . . . . . . . . . . . . . . . . 17

CONTENTS

Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Three Pillars and Two Pitfalls . . . . . . . . . . . . . . . . 20

Dividend Yield - Crown Jewel or Emperor's New Clothes 21 Why do high yield stocks provide higher returns? . . . . 23 Share Buybacks - the dividend yield's blind spot? . . . . 27

Chapter 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Dividend Safety - how to sleep better at night . . . . . . . 31 The traditional approach to safety . . . . . . . . . . . . . 33 A modern approach to safety . . . . . . . . . . . . . . . . 36 A Technical approach to safety . . . . . . . . . . . . . . . 38

Chapter 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Dividend Growth - a new holy grail? . . . . . . . . . . . . 42 Why the Dividend Growth Streak matters . . . . . . . . 42 The importance of compounding & Rule 72 . . . . . . . . 44 Opposing pillars? The trade off between growth and yield 45

Chapter 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

The Two Worst Pitfalls for Dividend investors . . . . . . 49 Pitfall 1: Failing to buy in tax-efficient wrappers . . . . . 49 Pitfall 2: Failing to always reinvest dividends . . . . . . . 51

Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

A compendium of income strategies . . . . . . . . . . . . 55 Strategy 1: Dogs of the Dow . . . . . . . . . . . . . . . . 56 Strategy 2: Geraldine Weiss' Yield Range . . . . . . . . . 58 Strategy 3: HYP - High Yield Portfolio . . . . . . . . . . . 60

CONTENTS

Strategy 4: DGI - Dividend Growth Investing . . . . . . . 62 Strategy 5: BSD - Big Safe Dividends . . . . . . . . . . . 64 Strategy 6: SG Quality Income . . . . . . . . . . . . . . . 67

Chapter 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Diversification - the only free lunch . . . . . . . . . . . . 71 Asset Allocation & Rebalancing . . . . . . . . . . . . . . . 74

Determining need ? the 4 percent Rule . . . . . . . . . . 74 The merits of dividend stocks vs bonds . . . . . . . . . . . 79

Inflation looms - why the time for stocks is near . . . . . 80 When to sell . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Why sell ever? . . . . . . . . . . . . . . . . . . . . . . . 85

Chapter 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Where to find dividend stocks . . . . . . . . . . . . . . . . 92 The Quant Approach - Screening and Indices . . . . . . . 92 Dividend History Indices . . . . . . . . . . . . . . . . . . 94 The Scuttlebutt Approach . . . . . . . . . . . . . . . . . 95 Piggybacking the best fund manager ideas . . . . . . . . 97

Chapter 10: Conclusion . . . . . . . . . . . . . . . . . . . 100

Chapter 11: Appendix . . . . . . . . . . . . . . . . . . . . 102

Dividend Basics . . . . . . . . . . . . . . . . . . . . . . . . 103 How to calculate dividend yield . . . . . . . . . . . . . . . 106 How to minimise dividend taxes . . . . . . . . . . . . . . . 108

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