Friday, April 26, 2013
Overall I believe that this book would be useful for investors who already have some background on the basics of dividend investing. As I read through it, I kept notes of things that I liked about, as opportunities for improvement. The book is called Dividend Growth: Freedom Through Passive Income US Edition. The book is also available for Kindle.
I liked that he shared his screening method for identifying dividend paying companies for further research. I was impressed that his screening method also looked for increases in revenues and net income, and not just dividends.
I also liked his discussion on how tricky calculating the dividend payout ratio is. The price to earnings ratio was another ratio whose calculation is tricky. The formulas themselves are not difficult to implement, but what makes it tricky is whether one uses trailing, forward or normalized earnings and dividends. The book stresses that investors need to make sure to double check every detail about companies researched before you invest. The book also stresses that it is important to invest for the long term, and that investors should ignore negative headlines completely.
There were a few typos, which made it confusing to me as a reader at times. A better editing would have been extremely helpful to get his points across.
The one thing I had never seen before however is the visualization of stock characteristics using quadrants. Mike uses quadrants to visualize dividend yield and dividend payout ratios. This visual method makes it pretty easy to spot good opportunities that could be screened through the next quadrants. He also runs his stock picks through other quadrants, where he looks at five year net income growth and P/E ratios as well as dividend yield versus dividend growth for companies being researched. Few dividend analysts ever focus on earnings growth, which is the fuel behind dividend growth, and therefore one of the most important ingredients behind future dividend increases. Overall I found an interesting new method to visually show information to make my point in presenting dividend ideas.
Mike also stresses on the importance of building diversified dividend portfolios. He focuses on sector diversification, geographic diversification. If you want to build a dividend machine that would regularly distribute money to pay for your retirement, implementing diversification is a very important tool to use.
The author is a financial advisor and a self-confessed active trader in his previous investing strategies. This is fine, but one can definitely notice that with his references to the CAPM, moving averages, selling a stock that went up 30%, and stock betas. However, I have found that active traders who become dividend investors tend to have valuable insights on investor psychology. One trait that I have is that I tend to have an itchy finger whenever I have cash in the brokerage account. I rush to buy, especially since there are so many opportunities I do not want to miss.
The author also discusses reading quarterly reports in order to make certain that the company is still performing according to expectations. The book then discusses how companies which do not meet the investment criteria anymore should be sold. While dividend investors should keep up with important material information affecting their holdings, it is debatable whether they should act on temporary noise that quarterly results represent. I do agree however with the premise that investors should monitor stocks and sell the ones whose long-term prospects are not bright anymore. I also disagree on the fact that dividend investors should use stop losses. Your dividend portfolio is not an actively traded portfolio, but a long-term income producing one. A stop loss would have led to realizing losses in quality companies like Johnson & Johnson (JNJ) and Procter & Gamble (PG) during the 2008 – 2009 financial crisis, despite the fact that these companies managed to increase profits and dividends during this tumultuous period.
I did find the overview of Canadian income stocks to be helpful, since most Canadian dividend paying stocks tend to pay a stable and growing distribution over time. The book also mentioned that US based income investors need to be aware of withholding taxes in taxable accounts. I also found the review of Real Estate Investment Trusts to be very descriptive and useful as well. It discussed the positive, negatives, tax implications, FFO etc. The Fin Viz screening method is not very useful when it comes to REITs however, which is why a reference to the dividend champions list would have been very helpful. I would encourage Mike however to add a primer on Master Limited Partnerships in his next edition of his book.
The last portion of the book discusses different stages of investing depending on level of experience and amount of funds at hand. The book recommends that investors with less than a certain amount of money should focus on dividend ETF’s to keep costs low and be diversified while they are getting a grip on dividend investing. Once this threshold is increased however, investors should focus on purchasing individual dividend paying stocks.
The biggest plus of this book is that it offers what other similar books offer, at a much lower price. The book sells for $14.99. You could also find the book on Kindle: Dividend Growth: Freedom Through Passive Income. It could be helpful tool to use because it includes several important aspects of dividend investing available in one resource. Overall I believe that this book will appeal to investors who have at least some background on dividend investing.
Full Disclosure: Long JNJ, PG,
- Diversified Dividend Portfolios – Don’t forget about quality
- Buy and Hold means Buy and Monitor
- Best Canadian Dividend Stocks
- Five Things to Look For in a Real Estate Investment Trusts
- Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors
- Book Review: Stop Working
Friday, May 15, 2009
As a blogger I often receive offers for different investing services and tools for review. I was recently offered to review Dave Van Knapp’s book “ The Top 40 Dividend Stocks for 2009” by the books creator. The book is updated every year with the most current information on dividend investing and with the best dividend picks according to the writer as well. You could check my review of last years book as well.
Last year’s picks from Dave Van Knapp’s book outperformed the S&P 500 by 11%. The list did lose about 27% in 2008 however. There were 34 dividend increases and only 6 dividend cuts or freezes.
The book is easy to read and could appeal both to novice and experienced dividend investors. It is well organized and provides a pretty complete guide to long-term wealth and income accumulation from dividend stocks.
It starts with an overview of the recent market action, which included many dividend cuts in 2008 and 2009 in the financial sector. The author then provides several reasons why investors who seek superior long-term returns should invest in dividend growth stocks.
The characteristics of the best dividend stocks are also being summarized in the next pages. If you had questions on how to create and manage your income portfolio the book would certainly try to answer those concerns.
One thing that separates this book from other books on Dividend Investing is that the author provides a list of 40 stocks as attractively valued investment ideas. Dave Van Knapp describes the methodology he uses to select the best dividend stocks for his readers. Not only does the book provide a list of stocks, but also includes brief stock analyses on each and every company in the catalog.
In general I found the book interesting and informative. I enjoyed not only the whole investing process that the author describes for creating and managing a successful dividend portfolios but also his overview of special high yielding dividend structures such as Real Estate Investment Trusts, Canadian Income Trusts, Master Limited Partnerships and Business Development Companies. Overall I believe that it is a must own book for every serious dividend investor. It is easy to read, well organized and provides a wealth of information not only for the novice investor but also for the seasoned pro!
Friday, September 26, 2008
“The Top 40 Dividend Stocks for 2008 – How and Why to Build a Cash Machine of Dividend Stocks”, Book Review
Recently I received an interesting book on dividend investing, titled “The top 40 Dividend Stocks for 2008 – how and why to build a cash machine of Dividend Stocks”, written by David P. Van Knapp. The author, who also maintains the site sensiblestocks.com, decided to skip the publishers altogether and has his book available to readers online in a PDF format. That made it easier for him to provide an up to date edition in order for his readers to stay competitive in the markets.
The book is very well written and is organized in 8 chapters, starting with an overview of dividend stocks in general, characteristics of the best dividend stocks, creating and managing a dividend portfolio and ending with the system that the author has created which has helped him identify the top 40 dividend stocks that he recommends. This book should be appealing not only to novice dividend investors but also to more seasoned stock pickers with its wealth of information on dividends. Almost everything you ever wanted to know about dividends could be found in it.
The author starts the book by giving an introduction of what dividends are and why investors should buy stocks which produce increasing streams of dividend income. He also discusses the pros and cons of dividends versus share buybacks, and proves that it pays to own the “boring” dividend stocks which provide the most efficient stream of income from a tax perspective right now. I especially enjoyed reading about his discussion on managing portfolios consisting of the best dividend stocks. I also liked his ideas on portfolio management where he set clear goals and objectives as well as strategies for achieving them. I also found the idea of avoiding to catch falling knives, and instead wait for the stock price to turn before accumulating shares particularly intriguing.
Another section focused on certain types of companies which are organized specifically to pay high dividends such as business development companies, real estate investment trusts as well as master limited partnerships.
Many investment services will sell you a cheap book which describes a system which is pre-sold throughout the book. Not this one – this author sells a buy one get one free type of deal as he not only shares his stock picking system but also provides specific picks as well as the reasoning behind selecting those picks. The last half of the book was specifically dedicated to analyzing the top 40 dividend stocks for 2008 in more detail, thirteen of which were non-US companies.
There were several items that the author might have to provide some clarity to readers in future editions of the book. A mention that unless the current tax code is extended beyond 2010, the tax rate on dividend income for the highest income brackets would be much more than 15%, would have been informative.
I also think that future editions of the book should mention something about holding dividend stocks in a tax-deferred account such as an IRA, ROTH IRA or a 401k. Most investors who are in the accumulations stage would be better off in the long run without having to pay taxes on their annual dividend income.
I enjoyed his writings on the BDC, REITS and MLP’s. I believe however that most investors overlook these vehicles because the distributions from the three types of firms are taxed somewhat differently compared to distributions from common stocks. I would have also enjoyed reading more about taxation on MLP’s from his own experience. Most other yield hungry investors would probably enjoy a small section on Canadian Income Trusts as well as tanker stocks such as NAT, FRO, DSX.
I personally disagree with him that dividend payout ratios are not important in individual stocks selection. In fact avoiding stocks with unreasonable payouts has prevented me from purchasing any stocks that were caught in the most recent financial turmoil, which had to cut their dividends in order to conserve cash.
Last but not least, despite the fact that Mr. Van Knapp shared the top 40 picks from his system, it seemed to me that his initial list of around 700 dividend paying stocks needed more clarification about the methodology in compiling it. Don’t get me wrong – the top 40 dividend paying stocks in his book are representative of what every dividend growth investors looks for. I wonder however if he compiled his initial list of stocks from other sources whether he would have arrived with different stock picks in the end.
Overall I enjoyed reading the book, and would recommend it to any serious dividend investor who wants to succeed in his or her endeavors. It is easy to read, well organized and provides a wealth of information not only for the novice investor but also for the seasoned pro!
This article originally appeared on TheDiv-Net.
Friday, July 18, 2008
Apparently the author of this book was able to “punch out” of the workforce at the tender age of 34. He was able to do this by investing a fixed amount of money every month for a period of about 12 years. Initially he bought only mutual funds, and later focused exclusively on dividend paying stocks.
Personally I thought that the book was very inspirational, because it shows the reader that they might not need as much as their financial advisors tell them to save for retirement. It also tells in a way the story of a dividend investor, gives a couple of dividend stock picks, and explains how dividend income is a better source of income compared to earnings from one’s job. The book strongly focuses on cash flow, in particular cash flow from stable dividend companies with long history of dividend increases. I also how he compared taxable income from wages to taxable income from dividends. If you check out his “sample portfolio”, you will notice that it was yielding about 6% in 2004/5, which is not unachievable. He did mention however, that you need to buy the stocks when they are trading at bargain prices. He also mentioned that had you bought the stocks in his sample portfolio at their bargain prices you would have paid about $100,000 for them, rather than $300,000 in 2004/5. And thus your yield on cost would have been 18%, rather than 6%.
The misleading part about this book is the fact that the author mentions how he saved $200/month plus his tax refunds in the stock market for 12 years. At the time of his retirement however, Derek Foster had a portfolio worth about $300,000 - $400,000, a fully paid house as well as a rental property. The numbers simply don’t add up for me. I have read in other sources that he made large leveraged directional bets in Altria in early 2000, which paid off well. Without this “gamble” I do not know whether he would have made it or not. One cautionary thing to add is that he wrote the book right after he retired at 34. I would want to see how he has adapted to changing market conditions (elimination of the income trust structure in Canada in several years) in 2015, 2025, 2035. I hope he will still be able to be retired even when he is in his 60’s. Another cautionary thing to add is that this strategy worked in Canada, where healthcare is practically free. If you lived in the US, however, you would need to save more simply for the rising healthcare costs.
Overall I considered the book to be very inspirational dividend book. If you keep saving a fixed amount of funds from your paycheck every month and you invest your money in quality companies which have a strong history of increasing dividends, you will be able to retire earlier that you thought possible.
What is your opinion on this book?
You could purchase Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree from Amazon.com.
This article originally appeared on The Div-Net one week ago.
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