For a while now I have been searching for a single, comprehensive book on the topic of dividend stocks and dividend investing aimed principally at the novice/beginner that I could recommend with a clean conscience to folks (who almost always seem to approach me for advice on investing AFTER they've lost most of their grubstake/nest egg and as luck would have it, just BEFORE their eagerly awaited retirement date!?!). After reading Lawrence Carrel's Dividend Stocks for Dummies I can say with reasonable certainty that this book fits the bill.
Although practiced for decades, the subject of dividend investing has steadily risen in popularity and prominence in the last ten years or so. When one thinks about it, this stands to reason partly because of the super-low interest rate environment investors have had to endure over this period, partly because of the growing need for income on the part of the greying, baby-boom demographic as they head into their retirement years and mostly because of the fact that investors of all stripes have had their wallets and portfolios cleaned out after chasing successive passive fads, from the internet and real estate bubbles, to growth stock manias and a slew of very disappointing IPO frenzies (Facebook, anyone?). This book passes on a few good ideas on where to hunt for dividend-paying stocks and how to go about acquiring them, ultimately with an eye to building a dividend investment portfolio in a safe, sound and relatively loss-free manner. However, it suffers from a few noteworthy but by no means mortal demerits, such as a lack of good information- at least from the qualitative standpoint- on how to evaluate dividend-paying stocks (it provides heaps of information on the quantitative front), as well as a few key omissions of critical information and a somewhat flawed presentation of one of the more prominent dividend investment methods.
Like all books in the Dummies series, Dividend Stocks... is very well organized and jam-packed with useful information; however, readers should keep in mind that some of this information, such as that having to do with taxation of dividends and that associated with lists of dividend paying stocks, will either be already out-of-date or soon will be out-of-date. The book consists of twenty-two (22) chapters organized into six (6) very manageable parts, plus an appendix (featuring the 2009 Standard And Poor's Dividend Aristocrats) and an index. In passing, I especially liked the abbreviated and extended tables of contents, with the latter allowing the reader to zero in on a specific topic. Also, its format allows the reader to delve into the topics of interest at one's leisure in a non-sequential fashion, as each chapter is pretty much self-contained. Each part of the book delves into considerable detail on one or more concepts integral to dividend investing.
Part One introduces (chapters 1-3) the concept of dividend investing. Here, the author makes the case for dividend investing and presents a brief summary of the core techniques that underpin dividend investing.
Part Two (chapters 4-8) provides a brief run-down of risk and return and introduces some ways to find dividend paying stocks. In particular, chapters 4 through 6 work equally well for the dividend-focused investor and for those new to stock investing, in general. Chapter 7 provides a few sources, some legitimate, and some questionable, that the novice can use to identify potential investments. Chapter 8 introduces the quantitative measures under-pinning dividend investing and that the novice can use to identify dividend paying stocks.
Part Three (chapters 9 through 13) focuses on the traditional economic sectors hosting dividend-paying stocks. The author identifies five broad economic sectors and devotes a chapter to each. Each chapter discloses some of (but not all) the nuances associated with the sector of interest. I took issue with the way author lumped certain things together, such as REITs and financials (which should have been separate chapters in my mind as they are completely different animals altogether), and generally regarded the chapters on utilities (chapter 9), consumer goods (chapter 12) and REITs and financials (chapter 13) as grossly under-done. However, given that the publisher-author duo pitched the book at an introductory level, this can be (mostly) forgiven.
Parts Four through Six contain the real heart and soul of the book. Part Four (chapters 14 through 17) gives the skinny on investment vehicles geared toward dividend investing. In it, the reader learns the four principal ways to invest in dividend-paying stocks (apart from going through a brokerage firm). I found two (2) key omissions within Part Four having to do with record-keeping and commissions paid on behalf of participants in direct stock purchase and dividend reinvestment plans. Although the author correctly points out the need for record-keeping when participating in direct stock purchase and dividend reinvestment plans, he failed to provide the reader with any tips on where to find good, stand-alone record-keeping programs (p. 212). He also failed to delve into important habits of good record-keeping, such as selling one's highest cost shares to minimize taxes owed and keeping track of all shares sold (so that the IRS doesn't accuse the hapless investor of double-dipping). Finally, he also failed to mention that commissions paid on the investor's behalf by the stock purchase or dividend reinvestment plan are taxable as ordinary income to the investor. Although these things are a minor nuisance when a portfolio is small, they become major headaches when the portfolio grows in size in both the number of stocks held and the total number of shares held (and their associated value).
Part Five (chapters 18 through 20) talks about managing a portfolio of dividend-paying stocks. Here the reader gets exposure to a couple of stock-picking strategies (chapter 18)- the dividend connection and the relative dividend yield, some of the ins and outs of dealing with brokerage accounts (chapter 19) and a good run-down of the current Federal tax laws (chapter 20) applicable to dividend investing (which, sadly, will probably pass into historical oblivion- and thus be irrelevant- in 2013). In passing, the author presented a flawed but workable explanation of Geraldine Weiss's Dividend Connection method (pages 263-6). Ms. Weiss, whose two books on the subject, The Dividend Connection: How Dividends Create Value in the Stock Market and Dividends Don't Lie: Finding Value in Blue-Chip Stocks, used P/E ratio and dividend yield in her technique. Specifically, she looked at charts of P/E versus dividend yield for a select group of stocks fitting certain specific criteria (typically mature companies with a sizable stock float and a long history of continuous operation and dividend payments) and recommended purchasing only those companies trading at low P/Es AND high dividend yields relative to the past established P/E and dividend-yield trend (which typically spanned decades) for the stock. Readers having interest in exploring Weiss's technique would benefit from reading either her two books (long out-of-print but still available used) or the more recent, updated follow-up book using her stock-picking technique, Dividends Still Don't Lie: The Truth About Investing in Blue Chip Stocks and Winning in the Stock Market.
Part Six addresses the more common misconceptions associated with dividend investing (chapter 21) and most common mistakes made when practicing dividend investing (chapter 22). In my mind, the book would have read better with chapter 21 being presented in Part One of the book where the author made the case for dividend investing.
In sum, this book provides the reader with a good starting point for dividend investing. It gives her some information on where to find dividend-paying stocks. It also provides a few good ideas on how best to incorporate dividend-paying stocks into a workable investment portfolio. A comparable but very much shorter book on the same topic is The Little Book of Big Dividends: A Safe Formula for Guaranteed Returns (Little Books. Big Profits), which can be read before this book, but not after (as Dividend Investing... is more comprehensive). I highly recommend Dividend Stocks For Dummies to the beginning investor.