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| THE TOP 40 DIVIDEND STOCKS FOR 2009: Dividend Investing for the Long Haul A Special Study and Step-by-Step Guide Table of Contents and Excerpt |
CONTENTS PAGE
1. Introduction……………………………………………………. 4
2. A Look Back at 2009 and Forward to 2010........................... 6
3. What Are Dividends?............................................................. 14
4. Why Invest in Dividend Stocks?............................................ 23
5. What Are the Characteristics of
the Best Dividend Stocks?............................................... 45
6. Creating and Managing
Your Dividend Stock Portfolio....................................... 64
7. The Top 40 Dividend Stocks for 2010................................... 75
8. Easy-Rate™ Scoresheets for the Top 40…………..…………. 86
9. Disclaimer and Important Information…………………..…… 129
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EXCERPT from
CHAPTER 4
WHY INVEST IN DIVIDEND STOCKS?
The case for dividend stocks is deceptively simple. Its true power is
missed by many. But it is not hard to understand.
Simply stated, the case for dividend stocks goes like this:
• Dividends are always positive.
• The best dividend-paying companies raise their dividends
regularly, usually at a pace that exceeds inflation.
• Dividends are not just for current income. Dividends can be re-
invested to build wealth.
• Re-invested dividends compound, accelerating the wealth-
building process.
• Dividend stocks offer (with some risk) the potential for price
appreciation in addition to the dividends they pay.
That’s it. Five bullet points. Many investors consider dividend investing
to be boring. Personally, I find the prospect of building a “cash
machine” of ever-increasing dividend-paying stocks to be rather
exciting.
I have been writing and speaking about the “secret weapon” aspects of
dividends for several years now. (For example, see this article.) Yet
many people do not appreciate the full power of the concept.
This is probably because most people think of stocks as assets that
you trade with a focus on price: buy low, sell high. If you mention
income production, they think of bonds. Sensible Dividend Investors,
however, see the full potential of stocks with rising dividends:
Instruments with the power both to produce income and to rise in
value; whose dividends rise over time; whose dividends can be re-
invested to accelerate the process of building wealth and increasing
income; and that do not have to be traded very often to realize these
benefits.
Because a dividend stock is not only an income security but also an
equity security, it combines the income-producing power of a bond with
the price-appreciation possibilities of a stock. The public’s attitude
toward dividends tends to wax and wane, depending on how the stock
markets are doing in terms of price. But the relentless mathematics of
dividend investing never changes. It just rolls along no matter what
current market conditions are.
In 1934, Benjamin Graham and David Dodd wrote in their classic
Security Analysis, "The prime purpose of a business corporation is to
pay dividends to its owners [emphasis added].” This statement is
more than a quaint reflection of its time. It is a fundamental view of
what owning shares in a company is all about. Many investors still
agree today: They consider the possibility of a stock price increase to
be speculative in comparison to a surer, steady flow of dividends. In
the 1940s and 1950s, investors often bought stocks mainly for their
dividends. If the stock appreciated in price, that was icing on the cake.
The cake itself was the dividend stream.
Studies show that dividends have accounted for half or more of the
total return of the stock market over very long terms. This may be
surprising considering how little publicity dividends get. There is no
widely followed dividend index that gets the kind of publicity given
every day to the Dow, the S&P 500, and the NASDAQ—all of which
reflect price changes only, and therefore give only half the picture of
“how stocks are doing.”
Dividend stocks are attractive as a core investment for anybody.
Common misperceptions are that dividend stocks are slow-growing,
boring investments; that a company’s payment of dividends is a sign of
weakness, indicating that the company cannot think of anything better
to do with the money; and that dividend stocks are good only for
retirees needing income. These notions are all incorrect.
Let’s explore the advantages of dividend stocks, and you can decide for
yourself. Along the way, I will introduce a few basic investing concepts
that everyone should know.
EXCERPT from
CHAPTER 4
WHY INVEST IN DIVIDEND STOCKS?
The case for dividend stocks is deceptively simple. Its true power is
missed by many. But it is not hard to understand.
Simply stated, the case for dividend stocks goes like this:
• Dividends are always positive.
• The best dividend-paying companies raise their dividends
regularly, usually at a pace that exceeds inflation.
• Dividends are not just for current income. Dividends can be re-
invested to build wealth.
• Re-invested dividends compound, accelerating the wealth-
building process.
• Dividend stocks offer (with some risk) the potential for price
appreciation in addition to the dividends they pay.
That’s it. Five bullet points. Many investors consider dividend investing
to be boring. Personally, I find the prospect of building a “cash
machine” of ever-increasing dividend-paying stocks to be rather
exciting.
I have been writing and speaking about the “secret weapon” aspects of
dividends for several years now. (For example, see this article.) Yet
many people do not appreciate the full power of the concept.
This is probably because most people think of stocks as assets that
you trade with a focus on price: buy low, sell high. If you mention
income production, they think of bonds. Sensible Dividend Investors,
however, see the full potential of stocks with rising dividends:
Instruments with the power both to produce income and to rise in
value; whose dividends rise over time; whose dividends can be re-
invested to accelerate the process of building wealth and increasing
income; and that do not have to be traded very often to realize these
benefits.
Because a dividend stock is not only an income security but also an
equity security, it combines the income-producing power of a bond with
the price-appreciation possibilities of a stock. The public’s attitude
toward dividends tends to wax and wane, depending on how the stock
markets are doing in terms of price. But the relentless mathematics of
dividend investing never changes. It just rolls along no matter what
current market conditions are.
In 1934, Benjamin Graham and David Dodd wrote in their classic
Security Analysis, "The prime purpose of a business corporation is to
pay dividends to its owners [emphasis added].” This statement is
more than a quaint reflection of its time. It is a fundamental view of
what owning shares in a company is all about. Many investors still
agree today: They consider the possibility of a stock price increase to
be speculative in comparison to a surer, steady flow of dividends. In
the 1940s and 1950s, investors often bought stocks mainly for their
dividends. If the stock appreciated in price, that was icing on the cake.
The cake itself was the dividend stream.
Studies show that dividends have accounted for half or more of the
total return of the stock market over very long terms. This may be
surprising considering how little publicity dividends get. There is no
widely followed dividend index that gets the kind of publicity given
every day to the Dow, the S&P 500, and the NASDAQ—all of which
reflect price changes only, and therefore give only half the picture of
“how stocks are doing.”
Dividend stocks are attractive as a core investment for anybody.
Common misperceptions are that dividend stocks are slow-growing,
boring investments; that a company’s payment of dividends is a sign of
weakness, indicating that the company cannot think of anything better
to do with the money; and that dividend stocks are good only for
retirees needing income. These notions are all incorrect.
Let’s explore the advantages of dividend stocks, and you can decide for
yourself. Along the way, I will introduce a few basic investing concepts
that everyone should know.
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