Dividend Investing For Beginners

I realize that there are some people who have found my blog recently for the first time. I’ve been receiving some emails from readers asking for information on how to start out dividend growth investing and really where to begin. This is important information, and it’s a shame I haven’t really covered this before.

Sometimes I get into some pretty technical jargon here on Dividend Mantra, even though I purposely try to keep everything pretty simple. I’m a simple guy with a simple job and I believe that simple investments work best. And that’s really why I love dividend growth investing: some of the best companies in the world have really simple and easy to understand business models. But, nonetheless if you’re just starting out some of this can be pretty overwhelming. So, today I’m going to get back to basics and recommend some fantastic reads to get you fully acquainted with what us dividend investors are trying to accomplish.

I only put my money where my mouth is, and as such I’m going to recommend resources I’ve personally used.

First, there are a few great books that provide a great education on the basics of dividend investing and why it can be such a superior strategy.

First up is The Dividend Toolkit by Matt Alden (the blogger behind Dividend Monk).

*This book is really fantastic. I did a review a while back, and my review doesn’t really fully give this book its due. It’s a phenomenal read that covers the basics of businesses, the importance of fresh capital, the impact of dividends on long-term returns and why it’s important to seek out high quality businesses that distribute them, how to properly analyze/value businesses and a summary of how different sectors (consumer stocks, industrials, MLPs, REITs, etc.) are valued differently. This book is not only a great resource on dividend growth investing, but also on building wealth in general.

Next is The Ultimate Dividend Playbook by Josh Peters (an editor for Morningstar).

*I’ve read most of this book and feel very comfortable recommending it. Josh writes in a very easy manner, and this book covers a lot of the basics. He explains why dividends matter, revealing how dividend paying companies tend to deliver superior returns over the long haul. He also talks a little about why shareholders benefit by receiving dividends, and it’s not just for the income aspect. His ‘Dividend Drill’ focuses on valuation in terms of future expected return (gordon growth model), safety of dividend (how well is it covered against earnings and cash), and the likelihood of the dividend continuing to grow over time (can the company continue increasing earnings).

Finally, we have the The Intelligent Investor by Benjamin Graham.

*Although not a dividend-specific book, this is probably the greatest book ever written on investing. I believe the main draw to this book, and really the crux of it, is that it covers the psychological warfare that investing can sometimes bring on a person. It covers emotions to the point where Mr. Graham actually refers to the market as a whole as a bi-polar “Mr. Market” that acts irrationally and emotionally. An intelligent investor takes advantage of these emotional swings. It covers equities as a whole, how and why one should invest, investment theory, achieving a margin of safety, market fluctuations and valuation methods all in great depth. I’ve read this book and could read it again tomorrow and pick up new things I didn’t see before. It’s that meaty and deep. To do a true review on this book would require multiple blog posts dedicated to nothing but. If Warren Buffett believes this is the best book on investing ever written, who am I to argue?

After reading these three books I feel confident that you will have a solid foundation of knowledge on why it’s important to invest, how investing works, why dividends are such an important component of total return, how businesses operate, how to analyze and value businesses, how to evaluate the safety of a company’s dividends, the likelihood of dividend increases and how to intelligently allocate capital without letting your emotions run wild.

Further, there are a set of great blogs out there that provide real-time, ongoing information on dividend investing that can’t quite be replicated in a book. One of the reasons I love writing this blog (versus a book) is that it’s live and in the now. Businesses and the stock market are almost organic in the way that they’re swaying to and fro, and live blogs are a great way to capture that ever-changing motion. Stock purchases or sales can be recorded within hours or days, new analyses can be published and viewed at any given time and business fundamentals can be viewed and discussed as they change over time.

Dividend Growth Investor constantly updates his blog with analysis on dividend growth stocks, general market information, when to buy and sell dividend growth stocks, why valuation matters and specific dividend growth stock ideas.

Dividend Ninja runs a Canadian dividend investing site that gives you a Northern flavor to this investment strategy. He often gives readers great information on Canadian dividend stocks, why it’s important to stay diversified between asset classes, what he’s buying, why high yielding stock should typically be avoided and also has great interviews.

Dividend Monk is well known for his in-depth stock analysis reports that he releases for free. He also runs a fantastic monthly newsletter that typically focuses on certain macroeconomic trends, broad market valuation and specific stock ideas.

Passive Income Pursuit has a great series on different valuation methods and also frequently does in-depth dividend stock valuations. Like me, he also alerts readers to any recent changes to his portfolio.

The Dividend Guy is another Canadian dividend investing blogger. He has great articles on macroeconomic news and how it can affect your investments, the market and valuation and often runs screens for his readers which can spit out some great stocks for further research.

Dividend Growth Stocks is one of the oldest blogs focusing on dividend growth investing. The author, D4L, often reviews stocks with in-depth analysis, highlights stocks that are trading at attractive valuations and publishes his dividend income monthly. His dividend income is very impressive, as is his portfolio.

Although not a blog, another extremely important resource is the Dividend Champion/Contender/Challenger list compiled and maintained by the great David Fish. This is a spreadsheet that lists companies with dividend growth streaks ranging from 5-9 years (Challengers), 10-24 years (Contenders) and 25+ years (Champions). A really invaluable resource to dividend growth investors with not only the list of companies that have such streaks, but also important metrics like dividend growth rates, payout ratios, PEG (price/earnings growth) ratios, valuation metrics (P/E, P/S, P/B), estimated 5-year growth, debt/equity ratios and return on equity numbers.

I also read Seeking Alpha’s Dividends & Income articles often. There are always new articles by a diverse collection of authors discussing earnings calls, specific stock ideas, stock analysis reports, investment theory, the dividend growth strategy and associated ideas. The real highlight and strength of Seeking Alpha is that it’s a great community of like-minded investors all discussing ideas and engaging with one another.

I’m now going to include a great video I watched not long ago on the basics of business, including balance sheets, cash flow statements and income statements. Great visual breakdown and the language is very easy to grasp. Thanks Dividend Growth Machine for pointing this video out:

William Ackman: Everything You Need To Know About Finance and Investing in Under an Hour

Finally, I’m going to conclude with not so much a resource but more of a general theme. As I alluded to earlier, keeping it simple is one of the hallmarks of my life. Not only do I live a very simple, easy life where I’ve cut down on the endless pursuit of the latest and greatest everything, but I’ve also concluded that the best way to invest is similarly to stay focused on simplicity. You don’t need to invest in futures, derivatives or binary options to make money.

If you’re just starting out take a look around your house, your work, your family’s homes, your friend’s homes, your local city and your local businesses. What products do you see? What services do you see people using? Look for recurring brand names, machines, advertisements. Even someone who lives as frugally as I do still has to brush their teeth, and I use Crest (PG) or Colgate (CL) toothpaste. I shave my head and face with Gillette Fusion razor blades (PG). I drink Coca-Cola (KO) or Pepsi (PEP) products on a daily basis. I don’t own a car, but my scooter runs on gas and so does the bus I ride. If I have a headache I’m going to take Tylenol (JNJ). I need electricity, running water and other utilities just like everyone else. I go to the grocery store and typically buy products made by General Mills (GIS), Kraft (KRFT), Unilever (UL), Nestle (NSRGY) and other global consumer product juggernauts. There are recurring themes in many products and services, and the key is to identify the highest quality of these companies that provide these products and services.

I hope this article helped any budding dividend growth investors out there just starting out. It wasn’t that long ago that I was also just beginning my investment career and there were many before me that helped steer me in the right direction. I hope that in the comments section below further resources can be shared and discussed, as this was really only a starting point rather than a complete list of resources available.

Full Disclosure: Long KO, PEP, JNJ

Thanks for reading.

Photo Credit: Idea go/FreeDigitalPhotos.net

Comments

  1. says

    DM… This is a great list of resources. I’ve used just about everyone of them myself except for William Ackman’s book. The Dividend Playbook is one of the first books I read when I decided I would go the dividend investing route.

    I think this is a topic you could easily do a series on…

    The Stoic

    • says

      The Stoic,

      Glad you enjoyed the list of resources!

      Yeah, that video by Ackman is really great. I don’t know how much of a fan I am of the guy personally, but he does a great job of breaking down how businesses work and putting it in terms that anyone can understand.

      I probably could do a series on it. I think this is a great starting point, however. After reading the books, watching the video and browsing the blogs should give you a pretty solid grasp on the basic fundamentals of investing, and from there one can formulate their own ideas and perspective.

      Best wishes!

    • says

      DGI,

      No problem on the mention. Yours was one of the very first blogs I found on this strategy and I found the content great, as it really showed me the basic concept of dividend growth investing and how it could work for the long-term.

      I seen that article. Pretty amazing! I’m definitely blessed to have all the attention, although it would have been nice for the blog to have been mentioned. Either way I hope someone out there was inspired!

      Best regards.

  2. says

    That’s a lot of what I started with when I began dividend investing. I remember reading a lot of Dividend Growth Investor, Dividend Growth Stocks and Seeking Alpha. The champions, contenders, and challengers list is amazing. Definitely plan on spending a lot of time with that list.

    • says

      MFIJ,

      Yeah, all of these resources are really fantastic. I would say that the CCC list is an absolutely invaluable resource among dividend growth investors. It’s a true treasure in our community!

      Take care!

  3. says

    Hey Div Mantra,

    thx for the mention :-). You can also tell your readers I have a free book for dividend investing beginners.

    I truly enjoyed Dividend Monk’s book too, it’s definitely a great resources!

    • says

      Mike,

      Hey, sorry about that. I should have mentioned your free e-book! That’s another great resource!

      The more resources, the merrier and I think that the more information that us dividend growth investors can share the better off we’ll all be. One of the reasons I love being a dividend growth investor is the wonderful sense of community. We all know it’s not a zero sum game, and we can all prosper together.

      Best wishes!

  4. says

    Great list! The CCC lists and Seeking Alpha are invaluable resources. I still need to read The Intelligent Investor. If you don’t mind I may link to this post from my blog as a resource.

    • says

      AAI,

      I wouldn’t mind the link at all. I’d definitely appreciate it!

      I think The Intelligent Investor is just a fantastic book. It really can’t be hyped enough. Just amazing stuff in there.

      I agree that David Fish’s list and Seeking Alpha are both really great resources as well. The Seeking Alpha community is quite unique, and the community aspect of it is what makes it so valuable, in my eyes.

      Best wishes!

  5. EB says

    Hey DM, have you looked at putting some money in REITs? While they are not as stable or predictable as Dividend Growth Stocks, the dividend yields are awesome because they are required to pay out 90% of their earnings to their shareholders. You can always but them and put in stop loss orders to ensure you don’t lose money. In my experience over the past few years, they’ve been very stable and have performed well.

    I currently own a bunch of AGNC and ARR, and now get over $5,000 a year in dividends from these two REIT stocks. The yields for these two REITs are currently over 15% and 13%. I also invest in regular dividend stocks like MO (Altria Group). Just a suggestion, it will help you get to your goal quicker.

    Overall, I think you’re doing a great job and just found out about you yesterday.

    • says

      EB,

      Thanks for stopping by! Glad you found the blog.

      I’m interested in REITs, but just not right now. Many of them have had huge runs as investors rush into higher yielding securities in the face of the low interest rate environment we’re in…so many REITs trade for multiples well above average. But, I am interested in real estate as an asset class and will either choose REITs (more likely) or physical ownership (less likely).

      I am particularly wary of mREITs, however. I would be very watchful over some of the holdings you have as those high yields are there because of high risk. Sudden changes in interest rates can affect these holdings dramatically, as those are much different entities than typical REITs.

      Thanks again for stopping by and I hope you continue to follow the journey!

      Best regards!

    • EB says

      DM,

      The Federal Reserve has pledged to keep interest rates at historic lows through 2015 (at least), so mREITS should be just fine for a while. I was reading an article yesterday about how both REITs and MLPs (Master Limited Partnerships) have outperformed the S&P 500 over the last 5 or 10 years. I’ve owned AGNC for a few years now and it has been the shining jewel of my portfolio. I believe they are the 2nd largest mREIT and between the dividend and the stock price have performed the best.

      I am also looking at branching out into MLPs, or at an MLP Index ETF like AMLP. They have performed extremely well and have yields higher than most stocks. Generally, I don’t like to invest in any stock or REIT that has a dividend yield less than 5%.

  6. says

    I’ve been looking for some more resources on the topic, thanks for this list! I’ve got to be honest, I hadn’t heard of dividend investing until recently, but it is peaking my interest.

    • says

      Jake,

      Glad you found some value in this article! It’s readers like you that I had in mind when I decided to put some resources down on paper. I hope it serves you well.

      Best wishes.

  7. says

    Great resources for the beginner investor! Investing in individual stocks can be a bit intimidating for a beginner investor, especially when focusing on a dividend growth strategy. Personally a big fan of most everything you’ve mentioned above.

    As a side note: Per usual DM, you are coming through with some awesome content. Expect to see this in the weekly roundup!

    • says

      w2r,

      Glad you enjoyed the list! I’m also a big fan of everything mentioned, as I only recommend what I personally find value in.

      Thanks for the kind words and I’d be honored to be part of your roundup. I truly appreciate it! :)

      Hope all is well.

      Take care.

  8. Onassis says

    Dear Jason,

    again a wonderful article – GREAT!! :-)

    Today I sat on the terrace, smoking a cigar and read the book from Benjamin Graham!
    It is a very old book, but but it’s all true!
    But I’m not thrilled with bonds, like Graham with his 50:50 (Bonds:Shares)
    I try to put ALL my money in shares.
    I’m not afraid of big price declines.
    Sir John Templeton also said buy 1 USD for 0.50 cents . :-)

    The links are very interesting, but I have already found the pages about your blogroll ;-)

    And last but not least: Buy what you can see and understand!
    This is what Peter Lynch has often done.

    Best reagards!

    Onassis

    • says

      Onassis,

      You got it right on Peter Lynch. He was famous for investing in things he clearly understood or personally would shop for and find value in (like the old story about his wife’s pantyhose).

      I’m not thrilled with bonds either, as almost every study you see shows them trailing stocks by a large margin over very long periods of time. Of course, in the short-term different asset classes will do better than others based on certain events or policies. Overall, I currently find myself very comfortable in being long almost 100% equities as I view bonds as even less attractive currently due to the low interest rates and strong odds of rates rising over the next couple years.

      Best wishes!

  9. says

    Thanks for reminding me about that video that DGM had linked to. I never got around to watching it but always meant to. I’ve also been meaning to pick up a copy of The Ultimate Dividend Playbook but haven’t ever been able to find it in my local Half Price Books. I might have to pay full price for that one.

    Thanks so much for the link. I feel honored to be mentioned in the same breath as the rest of them. Some bloggers don’t post about recent moves in their portfolio and that’s fine but for me I think it’s important to do so. If only to be able to point detractors and non-believers to those posts to show them exactly what that purchase provided in my quest to reach FI. Plus it doesn’t hurt to have others that do so as well because sometimes it helps me find new companies to research or brings to light that one is currently undervalued.

    • says

      Pursuit,

      Definitely check that video out. Nothing new for you or I, but I think the real value in it is just the ease of the explanations and the appreciation for the basics. I spent a Saturday afternoon watching it a while back and was glad I did.

      I find that posting about actual purchases is really a valuable way to share information amongst other dividend investors. I think I was one of the first bloggers to actually do this on a regular basis (actually showing shares, cost and time/date), and now it’s a bit more common. I’m glad for that as I think the exchange of information makes us all better and more knowledgeable investors. Like I said earlier, it’s not a zero sum game. I appreciate you sharing your information openly as well as I got a little flak about that in the beginning. There is a lot of talk about theory and generalities, but I wanted to show actual, hard numbers and show how a plan comes together over many years.

      Best regards.

    • says

      I appreciate that you do that DM, it is definitely different when talking about doing something, than actually SHOWING how you do it.

      I especially like the simple fact that you can show how you can replace XX% of your income with the dividends you currently earn – since you have a long running history of showing both monthly income from dividends and expenditures on your blog.

    • says

      me myself and I,

      I couldn’t agree more. That’s one of the big reasons I started this blog. There is a big difference between a blog or a book telling people how they can do certain things, and a book or blog showing how it actually got done – step by step. Theory and reality are very different and I always prefer the latter.

      And I enjoy showing the dividend income stream rising against a relatively static expenditure base, as it shows how realistic this strategy is. It’s easy to see dividend income cover 5%, then 10%, then 40% and eventually 100% or more of expenses over time when you’re viewing hard, actual numbers. It doesn’t happen overnight, but it does happen.

      Best wishes!

    • says

      FYC,

      Thanks so much for your appreciation. Without great readers, this blog would mean nothing.

      I seen that article. I’m really proud to be in the mainstream like that and (hopefully) inspiring a whole new crowd of people. There will be, of course, the naysayers and widespread criticism, but I do think that if you look past the noise you’ll see some real interest from a select group of people. Hopefully they find their way here!

      Best wishes.

  10. says

    This is a great list of resources for beginners. I think if a new investor — especially a young person — takes a month or two to read, browse, and digest the information from all these resources, he will be in a good position to start dividend growth investing. I hope it helps educate the new readers attracted to your blog.

    • says

      DGM,

      I agree. If someone actually takes the time to sift through all the information and absorb it they’ll be in a good position to make great decisions about their long-term wealth building strategy.

      You also provide a great resource yourself via your collection of wonderful articles over at Seeking Alpha. Keep up the great work!

      Best regards!

    • says

      Ninja,

      No problem on the mention! I consider your site a great resource, especially for Canadian dividend growth investors (of which there appears to be many).

      Keep up the great work on your end too!

      Best wishes.

    • says

      FYC,

      Yeah, even better to use your bike to go down to the library and check these books out for free. Then you’re getting educated and getting your frugal on all at the same time. :)

      Thanks for the kind words. Glad you enjoy the blog. :)

      Take care!

    • says

      Onassis,

      The Aristocrats list is great too. I consider the CCC list more complete, as there are certain volume and market cap requirements that the Aristocrats list has that the CCC list does not. Overall, both are fine resources.

      I hope you have a great weekend as well! :)

      Best regards.

  11. Spoonman says

    Thank you for putting together such fine compendium of dividend investing. I think this will put newcomers in an excellent position to invest in dividend growth stocks. I wish I’d had a compendium like this when I was starting out three years ago.

    • says

      Spoonman,

      Thanks for stopping by. I appreciate your support. :)

      Yeah, I think this resource, while by no means complete, is fairly robust. Sometimes less is more. I don’t think one needs a library of books and content to really grasp dividend growth investing. It’s a relatively easy strategy to understand and implement and that’s part of the allure. The hard part is controlling yourself and mastering your emotions.

      Thanks again!

      Best wishes.

  12. says

    I can really relate to your last paragraph, about investing in what you know or use. Sometimes I find it entertaining to see how many times I get paid from going to the store to buy a product.

    I get in my Toyota, drive to Wal-Mart, to get some Pepsi (among other things of course) and just from my weekly grocery trip I can theoretically get dividends from the following companies: Toyota (car I drove), Chevron (gas I used), Wal-Mart (store I shopped), Pepsi (product I purchased), AEP (power company that keeps Wal-Mart’s lights on), KIM (REIT that leases the building to Wal-Mart)..

    Of course you can sub any company for another, i.e. Honda, Ford, Kroger, Exxon, KO, CL, CLX, etc. But the main point is I could get paid dividends from 6 companies from one product on a grocery trip.

    I hate do comment Kevin O’Leary from Shark Tank cause sometimes he is a dick, entertaining none the less, but buying stock in these companies is like sending out “little soldiers to collect money to bring back to me.”

    • says

      me myself and I,

      That’s exactly it. I try to also find the products that I and others I know and see using every single day. In those products you see a kind of loyalty that just ensures future profitability for the underlying company. Like I said in the post, I’m extremely frugal and yet even I have a loyalty to certain brand name products – namely Fusion blades. I’ve tried cheap, store brand razor blades and they just don’t work.

      Glad that you really enjoy the dividend growth strategy. It’s wonderful to be able to buy a 12-pack of Pepsi at Wal-Mart knowing that you just contributed to your own dividend stream! :)

      Best regards.

  13. Anonymous says

    Hypothetically couldn’t you just invest in index funds until you had a nice lump sum and then invest in dividend stocks and live off the yield? There would be less risk because due to your older age the stocks you choose would have less time to deviate from ‘the market’.

    • says

      Anonymous,

      I’m not looking to deviate or not deviate from the market. By that, I mean I’m not looking to outperform the market. My goal is simply to build a large, and growing passive income stream via dividends that one day exceeds my expenses while outpacing inflation. To invest in index funds until I “had a nice lump sum” would probably deviate from that plan.

      Best wishes!

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