Book Review: The Little Book of Big Dividends

by Xin Lu on 2 April 2010 0 comments

Did you know that from 1926 to the present, dividends have accounted for 43 percent of the total return of the S&P 500 index? The Little Book of Big Dividends (affiliate link) by Charles B Carlson, CFA is a new book that teaches you how to invest in great dividend paying companies for the long term.

The author gives a good explanation as to why dividend stocks are currently attractive. Yields on savings and bonds are fairly low, and stocks have taken a serious beating in price. As a result, may dividend paying stocks have great yields compared to the past. Additionally, the weaker companies have been flushed out in the recent recession so many of the companies that are still growing their dividends are showing strength.

The book also describes how dividend reinvestment is great for investors who like to buy and hold. The idea behind dividend reinvestment is a combination of compound interest and dollar cost averaging. Each dividend is used to buy new shares of the stock, and those new shares are entitled to more dividends. In some cases this is more powerful than basic compound interest because when you reinvest your dividends you are buying shares automatically during high and low markets. In the recent recession, those dividends would have purchased more shares as prices have gone down. Investing in this manner takes the emotion out of buying more shares of a good stable company.

One thing I learned from this book is that investors can buy stocks directly from companies through direct purchase programs. Some of these programs even offer a discount on the stock price because the companies want a good relationship with long term investors. The book offers some investment ideas for those who want to invest in this manner. If the investor wants to invest through these plans he or she has to keep very good records of the investments and dividends since each plan is a separate account.

In conclusion, this is a great book for those want to begin building a growth and income portfolio with dividend stocks. It explains the basics of dividend stocks in a very clear manner and tells investors what components makes up a good dividend stock. The book ends with a list of stocks screened by the "Advanced Big Safe Dividends" formula, and anyone could go to the book's companion site at Big Safe Dividendsto check out the current scores of stocks in the S&P 1000. I definitely got a few investing ideas out of this book, and I think it is really an excellent introduction to income investing.

Disclosure: I received a free review copy of this book.

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