Dividend Stocks For Dummies E-Book

Lawrence Carrel

• Herausgeber: John Wiley & Sons
• Kategorie: Ratgeber
• Sprache: Englisch

Seitenzahl: 554

Veröffentlichungsjahr: 2010

Beschreibung

Expert advice on a mature, reliable way to invest money According to Fortune magazine, investing in dividends is one of the top five ways to survive market instability. Dividend Stocks For Dummies gives you the expert information and advice you need to successfully add dividends to your investment portfolio, revealing how to make the most out of dividend stock investing-no matter the type of market. * Explains the nuts and bolts of dividends, values, and returns * Shows you how to effectively research companies, gauge growth and return, and the best way to manage a dividend portfolio * Provides strategies for increasing dividend investments Weather a down market-reach for Dividend Stocks for Dummies!

Leseprobe

Dividend Stocks For Dummies®

Table of Contents

Introduction

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: Introducing Dividend Investing Basics

Part II: Selecting an Investment Approach and Picking Stocks

Part III: Exploring Income-Generating Industries

Part IV: Checking Out Dividend Investment Vehicles

Part V: Managing Your Portfolio

Part VI: The Part of Tens

Icons Used in This Book

Where to Go From Here

Part I : Introducing Dividend Investing Basics

Chapter 1: Wrapping Your Brain Around Dividend Investing

Coming to Terms with Dividend Stocks

Understanding why companies pay dividends

Appreciating the advantages of dividend investing

Acknowledging the risks

Prepping Yourself for the Journey Ahead

Gauging your risk tolerance

Choosing the right approach

Collecting capital to fuel your investments

Teaming up with a seasoned pro

Selecting First-Rate Dividend Stocks

Distinguishing dividend stocks from the rest of the pack in your research

Exploring sectors where dividend stocks hang out

Crunching the numbers

Performing additional research and analysis

Building and Managing Your Portfolio

Settling on a stock-picking strategy

Limiting your exposure to risk

Buying and selling shares

Reviewing your portfolio regularly

Staying on top of possible tax code changes

Checking Out Various Investment Vehicles

Chapter 2: Brushing Up on Dividend Details

Checking Out the Major Stock Market Indexes

Dow Jones Industrial Average

Standard & Poor’s 500

Recognizing the Difference between Common and Preferred Stock

Common stock

Preferred stock

Focusing on Company Fundamentals

Paying Tribute to Yields

Appreciating the Role Dividends Play in the Market

Acknowledging dividends’ contributions to returns

Witnessing the positive effects of dividends on stock prices

Celebrating Important Dates in the Life of a Dividend

Date of declaration

Trade date

Settlement date

Date of record

Ex-dividend date

Payment date

Chapter 3: Grasping the Dividend Advantage

Weighing the Pros and Cons of Investing in Dividend Stocks

Exploring the pros

Investigating the cons

Gaining Confidence by Investing in Solid Companies

Maturity: Boring, but stable

Good management

Stability

Strong earnings growth

Spotting early warning signs

Understanding the Rise and Fall of Dividend Stocks’ Popularity

We don’t need your stinkin’ dividends: Dividends fall out of favor

Dividend stocks stage a comeback

Part II: Selecting an Investment Approach and Picking Stocks

Chapter 4: Risky Business: Assessing Risk and Your Risk Tolerance

Weighing Risk and Reward

Graphing risk versus reward

Assigning a number to investment risk

Assigning a number to rewards

Recognizing the risk of no risk

Gauging and Raising Your Risk Tolerance

Measuring risk tolerance in sleepless nights

Boosting your risk tolerance with the promise of rewards

Recognizing Factors That Can Increase Risk

Dealing with risk factors you can control

Knowing factors outside your control

Mitigating Your Risks

Matching your strategy to your time frame

Performing your due diligence

Diversifying your investments

Employing dollar cost averaging

Chapter 5: Setting Goals and Making Plans

Examining Your Personality Profile

What’s your style?

How aggressive are you?

Formulating an Investment Plan

Defining your goals

Putting a plan in place

Budgeting to stay on course

Planning Specifically for Retirement

Social Security

Pensions

Defined contribution plans

Accounts you create yourself

Chapter 6: Choosing the Right Approach for You

Go for Broke with the Growth Approach

Seeking potential in the young and small

Profiting from share price appreciation

Focusing on growth

Securing a Steady Cash Flow with the Income Approach

Comparing income-investing options

Focusing on yield, payout ratio, and dividend growth

Targeting a dividend category

Establishing a Balance with the Value Approach

Valuing stocks: Two approaches

Spotting a bargain

Finding the Sweet Spot: Dividend-Paying Growth Stocks at Bargain Prices

Chapter 7: Searching for Promising Candidates

Focusing on What You Know

Digging Up Dividend Stocks on the Internet

Hunting on Yahoo! Finance

Googling on Google Finance

Shining a light with Morningstar

Finding the real data at the SEC

Picking the Brains of Professionals

Scrolling Through Investment Publications

The Wall Street Journal

Financial Times

Investor’s Business Daily

The magazine rack

Checking out some other investing sites

Chapter 8: Sizing Up Potential Picks

Digging Up Key Facts and Figures

Examining Company Fundamentals

Getting a financial snapshot from the balance sheet

Tallying profits and losses with an income statement

Watching the money stream with a cash flow statement

Calculating a Dividend’s Relative Strength

Getting a handle on yield

Appreciating how pricing affects yield

Utilizing the price-to-earnings (P/E) ratio

Looking at price-to-sales ratio

Calculating the payout ratio

Sizing up management with the return on equity

Sneaking a peek at the quick ratio

Covering the debt covering ratio

Valuing the debt-to-equity ratio

Working with price-to-book ratio

Recognizing a Potentially Good Dividend Stock

Rising dividend payments

Fiscal strength

Good value

Predictable, sustainable cash flow

Positive shareholder orientation

Good performance in battered industries

Part III: Exploring Income-Generating Industries

Chapter 9: Lighting Up Your Portfolio with Utilities

Defining Utilities

Knowing which companies qualify

Appreciating utilities’ income-generating capabilities

Dimming the lights: The potential pitfalls of utilities

Watching utilities beat the market

Assessing Utility Companies: What to Look For

Meeting Some Utilities to Consider

Chapter 10: Pumping Up Your Portfolio with Energy Partnerships

Exploring Energy Companies

Appreciating the benefits of energy company investing

Getting over energy companies’ negatives

Juicing up your portfolio with energy company stocks

Exploring Master Limited Partnerships

Marking MLP’s advantages

Digging into MLP’s disadvantages

Recognizing qualifying companies

Assessing MLP stocks

Chapter 11: Getting Connected with Telecommunications Stocks

Exploring Telecoms

Looking at the advantages

Realizing the disadvantages

Knowing which companies qualify

Evaluating sector risk

Assessing Telecom Stocks: What to Look For

Subscriber growth

Measuring stability of customer base with churn rate

Lifting the average revenue per user

Creating efficiency with consolidation

Stepping back to view EBITDA

Measuring debt versus equity

Following the free cash flow

Meeting Some Telecoms to Consider

Chapter 12: Investing in the Necessities of Life: Consumer Goods

Discovering the Consumer Goods Sector

Recognizing a consumer goods company

Understanding what influences a consumer staple’s income

Watching for the Signs of a Good Consumer Staples Stock

Considering Some Consumer Goods Companies

Chapter 13: Exploring REITs and Financials

The REIT Stuff: Getting a Handle on REIT Basics

Investigating the advantages and disadvantages

Knowing which companies qualify

Evaluating REITs

Assessing REITs

Calculating funds from operations (FFO)

Valuing a REIT

Growth among the REITs

Meeting some REITs to consider

Banking on Dividends from Banks

Investigating the pros and cons

Figuring out which companies qualify

Looking at banks’ income-generating capabilities

Assessing banks

Considering some potential banks

Part IV: Checking Out Dividend Investment Vehicles

Chapter 14: Compounding Your Returns with Dividend Reinvestment Plans

Understanding the Nature of DRIPs and DIPs

Recognizing the many names for DIPs

Understanding the difference between DRIPs and DSPs

Managing the plans

Weighing the Pros and Cons of DRIPs

Perusing the potential advantages

Looking at the downside

Enrolling in a DRIP

Scoring your first share

Obtaining an application

Submitting the paperwork

Calculating the Cost Basis of Shares Acquired through DRIPs

Squeezing Out More Information about DRIPs

Chapter 15: Diversifying Your Dividends through Mutual Funds

Taking a Refresher Course on Mutual Funds

Examining the pros and cons of mutual funds

Diversifying on the cheap

Reaping the benefits of dollar cost averaging

Understanding how funds pay dividends

A Necessary Evil: Paying Someone to Manage Your Mutual Fund Investments

Analyzing a fund’s management style

Accounting for expense ratios

Paying for the privilege with loads

Investing in Dividend-Focused Mutual Funds

Finding information on mutual funds

Spotting dividend-focused mutual funds

Understanding a fund’s share price

Reinvesting mutual fund dividends

Getting stuck paying taxes

Spotting a good pick: A checklist

Meeting Some Premier Dividend Mutual Funds

Chapter 16: Tapping the Best of Both Worlds with Exchange-Traded Funds

Understanding the ETF Difference

Taking a Look at the Benefits and Pitfalls of ETFs

Comparing advantages with mutual funds

Recognizing a few drawbacks

Taking a Closer Look at Some Unique ETF Advantages

Gaining flexibility

Reducing your cost of ownership

Achieving greater tax efficiency

Increasing transparency

Offering a variety of asset classes

Comparing loads against commissions

Getting the Lowdown on Dividends from ETFs

Reinvesting dividends

Paying taxes on ETF dividends

Shaking WisdomTree’s Family of Dividend Funds

Digging Up More Information on ETFs

Meeting Some Other Dividend Based ETFs

Chapter 17: Going Global with Foreign Dividends

Weighing the Pros and Cons of Investing in Global Dividends

Investigating the advantages

Recognizing the disadvantages

Examining a Few Ways to Go Global

Investing in American depositary receipts

Investing through a mutual fund or ETF

Buying directly on foreign exchanges

Covering Currency Concerns

Addressing Potential Tax Issues

Taxing qualified dividends

Accounting for withholdings

Remembering tax credits for withholdings

Part V: Managing Your Portfolio

Chapter 18: Choosing an Effective Stock-Picking Strategy

Minimizing Risk through Dollar Cost Averaging

Embracing the Dividend Connection

Identifying blue-chip stocks

Finding the connection

Going Against the Flow with Relative Dividend Yield

Sizing up a stock

Calculating the market index dividend yield and a stock’s relative dividend yield

Taming the Dogs of the Dow

Mastering the strategy

Comparing the results

Investing in the Dogs through mutual funds

Checking Out the Dividend Achievers

Chapter 19: Buying and Selling Dividend Stocks: Where and How

Deciding Between a Full-Service and Discount Broker

Debating the benefits and drawbacks of a full-service broker

Examining the pros and cons of discount brokers

Choosing a Full-Service Broker

Deciding between the fiduciary and suitability standards

Checking out investment preferences

Asking about fee structure

Conducting your own background check

Finding and Selecting a Discount Broker

Buying and Selling Shares

Market orders

Limit orders

Time orders

Stop-loss orders

Trailing stop orders

Short sales

Chapter 20: Tuning In to Changes in Tax Laws

Brushing Up on Dividend Taxation

Recognizing the drawbacks of double taxation

Getting a break with the JGTRRA

Identifying qualifying dividends

Meeting the holding period requirement

Wondering whether the tax break will survive

Delaying taxes with tax-deferred accounts

Taxing Dividends from Mutual Funds

Inspecting your 1099-DIV

Remembering other important dividend taxation considerations

Taxing Dividends from ETFs

Looking at MLP and REIT Taxation

REIT taxation

MLP taxation

Remaining Vigilant of Possible Tax Code Changes

Calculating your after-tax return

Staying tuned in to tax news

Part VI: The Part of Tens

Chapter 21: Setting the Record Straight: Ten Common Misconceptions about Dividends

Dividend Investing Is Only for Old, Retired Folks

I Can Get Better Returns with Growth Stocks

Dividend Stocks Are Safe Investments

Companies Limit Their Growth by Paying Dividends

Companies Should Always Pay Down Debt before Cutting Dividend Checks

Companies Must Maintain a Stable Dividend Payout

My Dividend Increases Won’t Even Keep Up with Inflation

All Dividends Are Taxed at the Same Rate

You Should Always Invest in High-Yield Stocks

REITs and Bank Stocks Are No Longer Good for Dividends

Chapter 22: Ten Dividend Investing Mistakes and How to Avoid Them

Buying a Stock Solely on a Hot Tip

Skipping Your Homework

Expecting to Buy and Sell Shares Just for the Dividend

Focusing Solely on Yield

Focusing on Current Rather than Future Dividends

Failing to Monitor Stocks and the Market

Buying a Stock Just Because It’s Cheap

Holding a Poor-Performing Stock for Too Long

Failing to Account for Taxes

Giving Too Much Credence to Media Reports and Analysis

Appendix: The Dividend Aristocrats

Dividend Stocks For Dummies®

Lawrence Carrel

Dividend Stocks For Dummies®

Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.com

Copyright © 2010 by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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Library of Congress Control Number: 2010924587

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About the Author

Lawrence Carrel is a seasoned financial journalist and author of ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for Successful Long-Term Investing (Wiley). He currently writes a blog of the same name at www.ETFsForTheLongRun.com.

After working as a newspaper reporter and editor, Carrel got in on the ground floor of the online publishing business when financial news entered the Internet age. As a founding staff member of The Wall Street Journal.com, he was one of the original writers of its Cyber Investing column and among the first to write about small stocks for the Web. Later at SmartMoney.com, his daily market commentary tracked the dot-com bubble and the crash of 2000. A year later, he created SmartMoney’s daily online hot stocks column, The One-Day Wonder. Over five years, he reported on nearly 1,200 different companies in almost every industry.

In 2006, Carrel originated SmartMoney.com’s Under the Radar column, which looked for investments among small stocks, and the ETF Focus column just as the exchange-traded fund (ETF) industry began its era of explosive growth. In 2007, he took over the weekly ETF and mutual funds columns at TheStreet.com. While there, Carrel predicted the 2008 stock market decline in August 2007 and told readers to start shorting the market with ETFs. He was also the first to report on the connection between the subprime mortgage crisis and the plunge in municipal bonds. And a year before it happened, he was the first to focus on the possibility of money market funds “breaking the buck.”

For three years, Carrel served as a daily contributor to The Wall Street Journal This Morning radio show and has been a guest commentator on MSNBC, CNN, and numerous other news networks. He has addressed the NASDAQ Stock Market as an ETF expert, and served as a founding featured journalist on The Investor Network, a social network for investors. In addition, his work has appeared in The Wall Street Journal, Barron’s Online, Bankrate.com, The Big Money, ETF Report, Financial Planning, Hard Assets Investor, IndexUniverse.com, and Structured Products. In a break from financial journalism, Carrel worked as a contributing editor on the college humor compilation, Lunacy: The Best of the Cornell Lunatic (Lunatic Press). A native of Buffalo, New York, and a graduate of Cornell University, he lives in New York City with his two sons.

Dedication

To Judy Hayes, who believed in me when no one else did.

Author’s Acknowledgments

Thanks to acquisitions editor Stacy Kennedy, who chose me to author this book, ironed out all the preliminary details to make the book possible, and exhibited incredible patience, faith, and understanding during the process. I’m extremely grateful to Joe Kraynak, a gifted editor and collaborator, who was instrumental in helping me complete this book; my wonderful agent, Marilyn Allen at Allen OShea Literary Agency, for getting me on this project; and Russell Wild, for recommending me to Marilyn.

Alissa Schwipps, my project editor, deserves a loud cheer for serving as a gifted editor — shuffling chapters back and forth, shepherding the text and graphics through production, making sure any technical issues were properly resolved, and serving as the unofficial quality control manager. Megan Knoll, copy editor, earns an award for ferreting out my typos and grammatical errors, making things clearer to understand, and fixing other language foe paws (or is it faux pas?), in addition to assisting Alissa as reader advocate. I also tip my hat to the production crew for doing such an outstanding job of transforming a loose collection of matchbook covers, napkins, scraps of paper, and illustrations into such an attractive bound book. Thanks to technical editor Noel Jameson for flagging technical errors in the manuscript and offering his advice from the world of dividend stock investing.

I want to thank the following people for giving their time to help me acquire the information necessary to write this book: Stuart Bell of WisdomTree Investments, Gary Bradshaw of Hodges Capital Management, John Buckingham of Al Frank Asset Management, Jennifer Connelly of JCPR, Anthony Corrao of Oppenheimer and Co., Lauren DeSanto of Morningstar, Jaime Doyle of SunStar, Mark Farber of Weiser LLP., Tom Forsha of Aston/RiverRoad Dividend All Cap Value Fund, Dan Genter of RNC Genter Capital Management, Carol Grauman of JCPR, David Guarino of Standard and Poor’s, Kathryn Hyatt of The Vanguard Group, Frank Ingarra of the Hennessey Funds, Rebecca Katz of The Vanguard Group, Naomi Kim of Dow Jones Indexes, Tony Kono of SunStar, Annette Larson of Morningstar, John R. Lieberman of Perelson Weiner LLP., Ivy McLemore of Invesco Aim, Melissa Murphy of SunStar, Vita Nelson of The MoneyPaper, Lisa Osofsky of Weiser LLP., Rebecca Patterson of Dow Jones Indexes, Josh Peters of Morningstar, Steven M. Rogé of R. W. Rogé and Co., Bill Rogers of Mergent, Tom Roseen of ThomsonReuters, Henry Sanders of Aston/RiverRoad Dividend All Cap Value Fund, Jeremy Schwartz of WisdomTree Investments, Kevin Shacknofsky of Alpine Funds, Howard Silverblatt of Standard and Poor’s, Jordan Smyth Jr. of Edgemoor Investment Advisors, Nadine Youssef of Morningstar, and William Zimmerman of Morgan, Lewis and Bockius.

I also want to thank my friends and family for their love and support: Kirsten Mogg, Judy Carrel, Jerome Carrel, Jackson Carrel, Janice Carrel, Marc Carrel, Theo Carrel, Darrin Greene, Nick Wade, Steven Fox for his legal help, and Greg Candela for the beer. I also owe an enormous amount of gratitude to Sterling Barrett and Joe Barello, who saved this project by procuring for me on short-notice a top-notch computer when both my desktop and laptop died a week before this book was due.

Publisher’s Acknowledgments

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Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Senior Project Editor: Alissa Schwipps

Contributor: Joe Kraynak

Acquisitions Editor: Stacy Kennedy

Copy Editor: Megan Knoll

Editorial Program Coordinator: Joe Niesen

Technical Editor: Noel Jameson

Senior Editorial Manager: Jennifer Ehrlich

Editorial Assistants: Rachelle Amick, Jennette ElNaggar

Senior Editorial Assistant: David Lutton

Cover Photos: © Steven Puetzer/Getty Images

Cartoons: Rich Tennant (www.the5thwave.com)

Composition Services

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Indexer: Sharon Shock

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies

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Kelly Regan, Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings, Vice President and Publisher, Dummies Technology/General User

Composition Services

Debbie Stailey, Director of Composition Services

Introduction

The purpose of the stock market is to enable companies to raise the capital they need to start or grow their businesses. Instead of borrowing money from a bank and paying interest on it, a company can sell shares of itself to investors. Over the years, the stock market has gone from being a respectable venue for investors to purchase partial ownership in companies to something more akin to a casino. Seduced by reports of individuals earning millions nearly overnight by investing in high-growth stocks, speculative investors poured money into many companies that offered nothing more than a promise of sales and profits, further inflating share prices. When the needle point of reality finally popped the bubble, the poor unfortunates who failed to cash out their chips early enough were blown away like dust.

Fortunately, the deflated bubble (along with some dividend-friendly tax legislation) brought many investors down to earth and back to the basics — investing in companies with a proven track record of earning profits and paying dividends. As they return to the fold, investors are beginning to realize what their parents, grandparents, and great-grandparents already knew — dividend investing offers a host of benefits that provide a safer and often more profitable way to invest in the stock market.

Dividend investing is nothing new. In fact, since 1602, when the Dutch East India Company became the first corporation to issue stock, dividends have been the primary way for investors to receive profits from their investments without dissolving the company or selling the investment. However, following a dividend-investment strategy is new to many modern investors who’ve been focused solely on growth investing. If you count yourself among this crowd or are just starting out and plan on investing in dividend stocks, you’ve come to the right place. Dividend Stocks For Dummies contains all you need to know to develop your strategy, find and evaluate potentially good dividend stocks, manage your portfolio, and avoid the most common and critical mistakes.

About This Book

I’d love to be able to hand you a list of stocks and send you off with instructions to buy each one, but investing doesn’t work that way. Every investor is different. You have a unique personality, specific goals, and a tolerance for risk that’s different from your neighbors next door or across the street. Every company is different, too, operating in a specific industry, offering unique products and services, and being managed to varying levels of success. As an investor, your goal is to pair yourself up with investment opportunities that are a suitable match. That’s what this book is all about.

In Dividend Stocks For Dummies, I present the idea of dividend investing and lead you through a process of self-examination to determine the type of investor you are, identify your goals, and develop an overall strategy that can move you most efficiently (and safely) from point A to point B. I show you how to find promising candidates and how to then evaluate them by using time-tested criteria so that you choose the best stocks to meet your needs. I mention some historically well-performing stocks you may want to check out, show you various ways to buy and sell shares, and offer guidance on managing your portfolio after you’ve purchased some shares.

The best part about this reference book is that you decide where to start and what to read. I’ve written every chapter to stand on its own, so you can start at the beginning of the book or pick any chapter from the table of contents and dig in.

As you read, keep one important point in mind: Past performance of a stock is no guarantee of future returns. I know, I know — you’ve heard that one before. But it’s worth repeating. What it boils down to is this: If I mention a company in this book that I think is a potentially good dividend stock, don’t assume I’m telling you to buy it. You may want to look into it, but I’m not necessarily recommending it. After all, by the time you read this book, that stallion of a stock may be a bust. Whatever you invest your money in or spend your money on is entirely your choice. I provide some guidance in picking stocks that may be likely to outperform other stocks, but I provide no specific recommendations. Take all the credit for your good investment decisions, but take all the blame for bad ones, too.

Conventions Used in This Book

I use several conventions in this book to call your attention to certain items. For example:

Italics highlight new, somewhat technical terms that I follow up with straightforward, easy-to-understand definitions.

Boldface text indicates key words in bulleted and instructive steps numbered lists.

Monofont highlights Web and e-mail addresses.

When this book was printed, some Web addresses may have needed to break across two lines of text. If that happened, rest assured that we haven’t put in any extra characters (such as hyphens) to indicate the break. So, when using one of these Web addresses, just type in exactly what you see in this book, pretending as though the line break doesn’t exist.

What You’re Not to Read

You can safely skip anything you see in a gray shaded box. We stuck this material in a box (actually called a sidebar) for the same reason that most people stick stuff in boxes — to get it out of the way, so you wouldn’t trip over it. However, you may find the case studies and brief asides in the sidebars engaging, entertaining, and perhaps even mildly informative. You can also pass over text tagged with a Technical Stuff icon; it’s technical or historical information that isn’t vital to understanding the topic at hand.

Foolish Assumptions

While writing this book, I made a few foolish assumptions, mainly about you and how much you know about investing:

You have a general understanding of investing and your investment options, including CDs (certificates of deposit), money market funds, stocks, bonds, mutual funds, real estate, and so on. If you don’t, check out Investing For Dummies, 5th Edition, by Eric Tyson (Wiley).

You grasp the basics of stock market investing. I provide a brief refresher in Chapter 2, but to develop a deeper understanding, check out Stock Investing For Dummies, 3rd Edition, by Paul Mladjenovic (Wiley).

You realize that investing always carries some risk, that some risks are greater than others, and that not investing can also be risky.

You have some money (capital) to invest. It doesn’t need to be stuffed in your pocket or sitting in a bank account. It can be money you already have invested, perhaps sitting in an IRA or 401(k).

You want a safer way to invest your hard-earned dollars, so you’re interested in introducing or adding more dividend stocks to your portfolio.

How This Book Is Organized

Although I encourage you to read this book from cover to cover to maximize the return on your investment, Dividend Stocks For Dummies presents the information in easily digestible chunks so that you can skip to the chapter or section that grabs your attention or meets your current needs, master it, and then skip to another section or simply set the book aside for later reference.

To help you navigate, I divvy the 22 chapters that make up the book into six parts. The following sections provide a quick overview of what’s covered in each part.

Part I: Introducing Dividend Investing Basics

Share prices grab headlines. Dividends don’t. As a result, investors are often in the dark about dividend investing, even if they’re well-schooled in picking stocks based on share price alone.

In this part, I bring you up to speed with a brief primer on dividend investing, explore dividend stocks in a little more detail, and then reveal over a half-dozen advantages that dividend stocks offer.

Part II: Selecting an Investment Approach and Picking Stocks

Picking stocks is like playing matchmaker for yourself. When you’re looking for a date, you need to know who you are and what you’re looking for before you start skimming the personal ads. In the same way, you need to know what type of investor you are and your overall investment strategy so that you can find a suitable match.

The first couple of chapters in this part show you how to perform an investor self-assessment, which includes gauging your tolerance for risk, so that you can determine what kind of investor you are and what situation you’re in. Based on the results of this assessment, you can choose the investment approach that’s likely to be best for you. Finally, in the last two chapters of the part, I show you how to identify stocks that pay dividends and then how to evaluate them to pick the best dividend-paying stocks of the bunch.

Part III: Exploring Income-Generating Industries

The stock market groups businesses by market sector, which can be a single industry or a combination of connected industries, including consumer staples, energy, transportation, technology, utilities, and health care. Companies in certain sectors are more likely to pay dividends than companies in other sectors. In addition, some companies within a sector are generally better income-generating (dividend-paying) companies than others.

The chapters in this part introduce you to the sectors that are better known for paying dividends. For each sector, I explain the types of companies included in the sector, why companies in the sector are more likely than companies in other sectors to pay dividends, and what to look for when considering companies in this sector. For each sector, I also provide a list of companies that have had a pretty good track record for paying dividends.

Part IV: Checking Out Dividend Investment Vehicles

Not so long ago in a land not very far away, the only way to invest in the stock market was to buy shares directly from the company or from other investors. Since then, some inventive souls have developed all sorts of ways to buy and sell shares. This part introduces you to the most common and effective methods as they relate specifically to dividend investing.

Here, you discover how to reinvest your dividends one drop at a time with dividend reinvestment plans (DRIPs), eliminate the middleman (or woman) with direct purchase programs (DPPs), diversify through mutual funds and exchange-traded funds (ETFs), and invest in foreign companies that pay dividends without having to exchange your dollars for euros or yen.

Part V: Managing Your Portfolio

Although other parts of this book address the intricacies of dividend investing, including analyzing specific companies, this part takes a step back to reveal big-picture tasks, including coming up with a solid strategy, examining various ways to buy and sell shares, and monitoring tax legislation so that you can keep more of your earnings.

Part VI: The Part of Tens

Every For Dummies book includes a Part of Tens, and I didn’t want to be the first author to break rank, so I included one in this book, too. In this part, I cover the ten most prevalent myths and misconceptions about dividends and ten common dividend investing mistakes (along with suggestions on how to avoid them). As a bonus, the end of the book also includes an appendix of Dividend Acheivers.

Icons Used in This Book

Throughout this book, you can spot icons in the margins that call your attention to different types of information. Here are the icons I use and a brief description of each:

Everything in this book is important, but some of it’s more important. When you see this icon, read the text next to it not once but two or three times to brand it on your brain cells.

Tips provide insider insight from behind the scenes. When you’re looking for a better, faster, safer, and/or cheaper way to do something, check out these tips.

This icon appears when you need to be extra vigilant or seek professional help before moving forward.

Investing has its fair share of highly specialized language and concepts that typically flies above the heads of mere mortals. Whenever I explain something highly technical, I flag it with this icon so that you know what’s coming.

Where to Go From Here

Dividend Stocks For Dummies is designed to appeal to a universal audience of intermediate and experienced investors at all stages of developing and managing their investment portfolios.

For the new dividend stock investor, I recommend you read the book from cover to cover starting with Chapter 1. More experienced divided stock investors who already know themselves and their goals and have an effective strategy in place to reach those goals may want to skip to Chapter 7, where I show you how to track down income-generating, dividend paying stocks, or Chapter 8, where I show you how to evaluate them.

Regardless of your experience, however, feel free to skip around and read whatever catches your interest. Each and every tidbit of knowledge and insight you acquire can only serve to make you a more astute investor.

Part I

Introducing Dividend Investing Basics

In this part . . .

If you can’t tell the difference between dividend stock and livestock, you’ve come to the right place. In this part, I lead you on the nickel tour of what dividend investing is all about, reveal the bare essentials of dividend stocks and how they differ from their non-dividend paying counterparts, and showcase the numerous advantages you can reap by investing in dividend stocks.

Chapter 1

Wrapping Your Brain Around Dividend Investing

In This Chapter

Understanding dividend stocks and their benefits and risks

Preparing to become a savvy dividend stock investor

Knowing what to look for as you shop for dividend stocks

Monitoring and adjusting the holdings in your portfolio

Investing is a lot like car shopping on a budget. When you’re shopping for a car, you usually have at least a vague notion of how much car you can afford, and you want to get the most car for your money without getting stuck with a lemon. When you’re shopping for investments, you want the biggest bang for your buck without exposing yourself to more risk than your strategy calls for. And you have plenty of choices of where to put your money — stocks, bonds, mutual funds, money market accounts, real estate, or even socking it away in the bank.