The Dividend Growth Investment Strategy: How to Keep Your Retirement Income Doubling Every Five Years

Rating:
Summary: Insightful and thought provoking
Review: I've been investing in stocks and reading investment books for 5 years. Ms. Klugman's book is definately one of the best I've read.

She makes a very cogent arguement for this style of investing, which in a nutshell is:

1. Dividend growth shields investors from emotional turmoil of having your investments sink in value, since these stocks tend to stand up well and also because of the dividend income stream. This is very important if you have a low threshold for financial panic.
2. Dividend growth provides relatively small income streams at first, presumably when you don't need income (and when your taxes are highest), but it grows so that at retirement you will have a large annual income.
3. Dividend growth strategy should have much higher returns than bonds, since your dividend income will grow, while bonds pay static returns.
4. If you hold stocks in an IRA and just live off the dividends and pass the stocks to your heirs, it is a perfect tax shelter for transfering huge amounts of wealth, since all the capital gains on the stocks are not taxable when the stocks are inherited.

Ms. Klugman does mention in passing that Dividend Growth is not necessarily the highest return strategy, and probably will not even keep pace with an index fund. However, Ms. Klugman makes a very compelling case for this style of investing. In addition, her observations about the Wall Street in general are insightful and make good reading.

I have read over 20 books on investing. This is the among the few that I am still mulling it over 2 weeks after I finished reading it.

Rating:
Summary: Insightful and thought provoking
Review: I've been investing in stocks and reading investment books for 5 years. Ms. Klugman's book is definately one of the best I've read.

She makes a very cogent arguement for this style of investing, which in a nutshell is:

1. Dividend growth shields investors from emotional turmoil of having your investments sink in value, since these stocks tend to stand up well and also because of the dividend income stream. This is very important if you have a low threshold for financial panic.
2. Dividend growth provides relatively small income streams at first, presumably when you don't need income (and when your taxes are highest), but it grows so that at retirement you will have a large annual income.
3. Dividend growth strategy should have much higher returns than bonds, since your dividend income will grow, while bonds pay static returns.
4. If you hold stocks in an IRA and just live off the dividends and pass the stocks to your heirs, it is a perfect tax shelter for transfering huge amounts of wealth, since all the capital gains on the stocks are not taxable when the stocks are inherited.

Ms. Klugman does mention in passing that Dividend Growth is not necessarily the highest return strategy, and probably will not even keep pace with an index fund. However, Ms. Klugman makes a very compelling case for this style of investing. In addition, her observations about the Wall Street in general are insightful and make good reading.

I have read over 20 books on investing. This is the among the few that I am still mulling it over 2 weeks after I finished reading it.

Rating:
Summary: USEFUL, BUT......
Review: It is not my purpose to pan this book. The 5 star rating system is sometimes less flexible than one would like. Ms. Klugman actually has a good point to make. Dividends are very useful in any investment strategy that has twenty or thirty years to run. In fact I would go so far as to argue that as a shareholder, a dividend is your absolute right. You own that company, or part of it. Without your capital, the company would not likely be in business and, when it makes a profit, you the owners, should share that success without having to sell your shares to realize it! Ms. Klugman, however, seems sometimes less than fair and careful when arguing against views she does not share.

For intance, she seems to suggest that if you own bonds, you are a faint hearted chump. She utterly fails to accord to bonds the same compounding effect she claims for dividends. Nonsense. Anything that returns a gain that's reinvested compounds. Let me attempt a quick (and mathematically dirty) example to show the approximate effect of bonds, in this case a bond fund. Say three years ago you had $100,000.00. Say you put it all into S&P 500 quality stocks with no dividends. At the end of 2002, you'd have had about $69,880. If you include a 2.5% dividend yield each year you'd have about $76,568. If, however, you'd put $80,000 into the dividend S&P 500 stocks and $20,000 into Vanguard's Long Term Corporate Bond fund, after paying it's .31% annual cost you'd have a total (between stocks and the bond fund)of about $90,258, a full 20.4% better than 100% stocks without dividends and 13.7% better than the dividend stocks. If you were looking at retirement inside of 10 years, that bond cushion would have made a big difference to you.

I know this is long, sorry. But one more point. Dividends are not guaranteed to rise. Even in a strong dividend culture like Heinz, a company Ms. Klugman cites favorably, this is demonstrably true. From a 3 for 2 stock split in '95, Heinz quarterly dividends climbed steadily from $.26/share to $.43 in 3/02. Then they were lowered to $.41, climbed again to $.44 in December '02 and were slashed (no stock split this time) to $.27/share in 3/03.

Still, dividends are MUY BUENO! If you own stock in a company not paying them, ask them and yourself why. If Ms. Klugman's book motivates you to look into this dividend thing, there's a web site (and newsletter) that you may find very interesting. ... This is put out by Ms. Geraldine Weiss (and her merry men) and will give you some insight into valuing companies by the relative dividend yield of their stock (a concept also practiced by Ms. Nancy Tengler and her associates). Ms. Klugman has the right idea here: take control of your own future. As such this is a useful book, but... there is no one surefire way. It's about dicipline , diversification, and allocation of assets (all of which I say better than I do). Good luck to you all, and remember, neither governments nor corporate managements know how to use your money better than you do.

Rating:
Summary: USEFUL, BUT......
Review: It is not my purpose to pan this book. The 5 star rating system is sometimes less flexible than one would like. Ms. Klugman actually has a good point to make. Dividends are very useful in any investment strategy that has twenty or thirty years to run. In fact I would go so far as to argue that as a shareholder, a dividend is your absolute right. You own that company, or part of it. Without your capital, the company would not likely be in business and, when it makes a profit, you the owners, should share that success without having to sell your shares to realize it! Ms. Klugman, however, seems sometimes less than fair and careful when arguing against views she does not share.

For intance, she seems to suggest that if you own bonds, you are a faint hearted chump. She utterly fails to accord to bonds the same compounding effect she claims for dividends. Nonsense. Anything that returns a gain that's reinvested compounds. Let me attempt a quick (and mathematically dirty) example to show the approximate effect of bonds, in this case a bond fund. Say three years ago you had $100,000.00. Say you put it all into S&P 500 quality stocks with no dividends. At the end of 2002, you'd have had about $69,880. If you include a 2.5% dividend yield each year you'd have about $76,568. If, however, you'd put $80,000 into the dividend S&P 500 stocks and $20,000 into Vanguard's Long Term Corporate Bond fund, after paying it's .31% annual cost you'd have a total (between stocks and the bond fund)of about $90,258, a full 20.4% better than 100% stocks without dividends and 13.7% better than the dividend stocks. If you were looking at retirement inside of 10 years, that bond cushion would have made a big difference to you.

I know this is long, sorry. But one more point. Dividends are not guaranteed to rise. Even in a strong dividend culture like Heinz, a company Ms. Klugman cites favorably, this is demonstrably true. From a 3 for 2 stock split in '95, Heinz quarterly dividends climbed steadily from $.26/share to $.43 in 3/02. Then they were lowered to $.41, climbed again to $.44 in December '02 and were slashed (no stock split this time) to $.27/share in 3/03.

Still, dividends are MUY BUENO! If you own stock in a company not paying them, ask them and yourself why. If Ms. Klugman's book motivates you to look into this dividend thing, there's a web site (and newsletter) that you may find very interesting. ... This is put out by Ms. Geraldine Weiss (and her merry men) and will give you some insight into valuing companies by the relative dividend yield of their stock (a concept also practiced by Ms. Nancy Tengler and her associates). Ms. Klugman has the right idea here: take control of your own future. As such this is a useful book, but... there is no one surefire way. It's about dicipline , diversification, and allocation of assets (all of which I say better than I do). Good luck to you all, and remember, neither governments nor corporate managements know how to use your money better than you do.

Rating:
Summary: Good for part of your portfolio
Review: This is a very good book especially for the faint of heart and those who shirk at aggressive growth stocks.In my opinion, this would be most useful as long as it represented part of your portfolio (especially for younger investors) I also agree with this author on bonds. They cannot compare with equities except in those rare times when interest rate are high and start coming down. Bonds are not a good long term strategy - but equities are.I am using this strategy along with agressive no load mutual funds. You can double your money every 4-5 years with mutual funds and save on the commissions. President Bush's new tax plan will make this dividend strategy program even more lucrative (as longas the Dmocrats don't screw it up)The dividend growth strategy is an excellent book and I highly recommend it along with the WSJ and IBD to research those dividend stocks.