- Every issue, SA explores a dividend and income investing question and shares the responses, as well as highlights some of the week's insightful pieces of opinion and analysis.
- This week, contributors look at their favorite books on dividend investing, the dividend reinvestment dilemma, words of wisdom from SA's own David Van Knapp, and the lingering questions following Williams' rejection of Energy Transfer Equity's bid.
- What should Seeking Alpha be tracking in the dividends & income world? Leave a comment to let us know. Or better yet, submit an article of your own.
Welcome to the inaugural issue of Dividends & Income Digest. Every Friday, or maybe every other Friday (depending on the response I get and how busy y'all keep me with submissions), I'd like to post a "symposium" of sorts, where I ask various authors a question pertaining to dividend and income investing, compile the responses and share them here.
Furthermore, as you probably know, you're generating some incredible content. I've been focusing on the Dividends, Income and Retirement vertical since last August. The community has been prolific, and the ideas and audience engagement have been outstanding, in my opinion. I'm proud to be the dedicated editor for such a savvy, wise and collaborative community of investors. The camaraderie and willingness to help and offer advice that I've seen in the comments has been truly inspiring. So the Digest will also contain a roundup of outstanding content from the week, with links to featured articles.
I've created the Digest to provide more great content, and to gain some visibility, both for the DI community, and for me as its editor (so folks know who to approach with issues, article ideas, to become a contributor, etc.).
I'd love your input on the Digest, too. What sort of questions would you like to see answered here? What other sorts of information would you find helpful? Please also feel free to send me links to awesome articles you come across during the week that you think should be featured here.
Let's make this a community effort, and have some fun with it!
So without further ado, here's this week's question:
What are your top 3 favorite books on dividend investing, and why?
How did these help shape your own approach to investing?
What are a few of the key things you've learned from these books, and why would you recommend them to other investors?
I have to admit, this question was partially (and a little selfishly) motivated by my desire to drum up some new beach reads for summer. Here are the responses -- some may be predictable, some rather surprising, but all are helpful and have earned their rightful places on these investors' bookshelves. Maybe they'll inspire some of your summer reading selections, too.
My favorite book on dividend investing is "The Single Best Investment" by Lowell Miller.
It was this book that got me to focus on the concept of investing in high quality companies with the mindset of taking ownership, being a business partner, if you will, with a company and to stop looking at stocks as prices running across the CNBC ticker tape. It was through this book that I learned the concept of:
High Quality + High Current Yield + High Growth of Yield = High Total Return.
High quality is any company that rates BBB+ or higher by S&P and/or Morningstar, or carries a 1 or 2 Safety rating by Value Line. It was the high current yield plus high growth of yield that had me come up with what others refer to as the Chowder Rule. I wrote an instablog on SA providing the background and criteria behind the Chowder Rule .
It was through this book that I started to focus on owning high-quality companies that I would be willing to add to during meaningful market corrections as opposed to selling them. I learned that the best investments are those where paper losses are tolerable as opposed to being fearful of them, and to have the full faith and confidence that adding to those positions during market draw-downs is a prudent strategy.
This book taught me to become a business analyst as opposed to a market analyst.
My second favorite book is, "The Ultimate Dividend Playbook" by Josh Peters of Morningstar. My third favorite book is "Dividends Still Don't Lie" by Kelley Wright.
I'm a huge fan of SA contributors and community members collaborating on projects; this site was built on the idea of crowd-sourced information, and I think these types of projects really play into that. I was especially excited when I realized what the first topic of Robyn's round table would be: literature.
It's rare that I find myself in my element here. I haven't been investing, or even thinking about the markets, for all that long. Now, I really enjoy portfolio management, but for the vast majority of my life, I couldn't have told you the difference between the Dow Jones 100 and the Standard & Poor's 500. In the grand scheme of things, it wasn't all that long ago that dividends meant nothing to me. Neither did index, hedge, or mutual funds. The only funds that mattered were the ones I was trying to scrounge together to buy a pizza.
I say all of this because long before investing mattered in my life, reading was a major passion of mine. I studied English in college and this is the first opportunity that I've had for this site to write about literature. No, I'm still not able to talk about my absolute favorites, Jim Harrison or Jack Kerouac, but hey, Warren Buffett and Benjamin Graham aren't bad, either.
Book #1 for me isn't really a book at all. In my opinion, the best resource out there for investors to read are the annual Berkshire (NYSE:BRK.A ) (NYSE:BRK.B ) letters to shareholders. I think of each year's letter as a chapter of an ongoing novel project, so in that sense, I guess these could be considered a "book." These letters are truly gems, year in and year out. I know that Berkshire doesn't pay a dividend, but that doesn't mean they aren't discussed in these letters. Mr. Buffett's words might cause a DGI investor to challenge his or her faith with regards to their chosen system. That said, these letters are chock full of wonderful information on the principles of value investing. They give investors a sense of the times and of the near-term future. They help investors to put the past into perspective as well now that Mr. Buffett has more than a half century's worth of investment knowledge to pull from. And most importantly, these letters are fun to read. It's rare that you find investing-related literature that isn't dry and slow paced. These letters aren't. Sure, there are some boring business-related number sections, but I'm talking about the prose. Buffett is clever (and he knows it) and wry and witty. He isn't afraid to fire fun shots at Charlie Munger, or even better, himself. Every time I re-read these letters, I come away with something new. To me, they just get better with age. I highly recommend them; they're free as well, which is great.
Book #2 falls from the same investing
tree as book number #1. I'm talking about the iconic work, "The Intelligent Investor" by Benjamin Graham, Buffett's former teacher and mentor. When I first got into the stock market, I quickly realized that I needed to read this book. It came widely and highly recommended and now I see why. This work is a bit dry and sometimes downright boring. That's okay, though, because the information is golden and worth the time and effort it takes to make it through. This book is where I learned the massive importance of seeking and solidifying margin of safety when making purchases. This is discussed early and often throughout the work. I sometimes wonder where I would be as an investor without Mr. Graham's teaching on the importance of margin of safety. Now this mindset seems second nature to me and plays a major role in my portfolio management strategy, but I know it wasn't that way at first.
Book #3 isn't about investing at all. I figured that since I choose two fairly stereotypical works for my first two, I would break the mold a bit with my third. For my final selection, I am choosing one of my absolute favorite books to read: "Once a Runner" by John Parker. This book has a cult-like following amongst distance runners. It was given to me after I committed to run track and cross country at the University of Virginia and besides the Bible, I can't think of a much more influential book in my life. I won't ruin it for any prospective readers, but I will give a quick synopsis to show how it relates not only to high level distance running, but to dividend investing as well.
The plot is focused on the protagonist, Quenton Cassidy, an up and coming miler at the fictional Southeastern University (which is based on the University of Florida for all you Gators out there) and his pursuit of the perfection of his craft. Cassidy trains with a former gold medal winning 5k runner, Bruce Denton, who is a great friend and mentor to the Southeastern distance men, Quenton especially. Bruce has reached the pinnacle of the sport and demands the respect associated with his Olympic champion status. However, he does this quietly in his life and his training. In the novel, runners travel from all over the country to join the band of men that train in northern Florida. Many burn out and fail because they can't maintain the mental strength needed for Denton's system.
You know what this system is? Its called the Trial of Miles. What this means is daily consistency. One doesn't have to run exceedingly fast or exceedingly long. No, runners just have to adopt the consistent mindset that every day, for years on end, they will be running a relatively easy pace (6-7 minute miles, which for an athlete at this level seems like child's play) building up their aerobic base. From the running standpoint, this system is about burning away the ego, the extra pounds, the molecules that are holding an athlete back from his or her absolute potential, slowly and conservatively, without risking injury. Mentally, this is a drain. It requires patience and restraint (most shot shot runners want to run fast and/or long, but this isn't the point, consistency is). It takes time, but the method is proven; Bruce won a gold medal, after all.
To me, this relates directly to investing in the slow, conservative, buy and hold, let your income stream build and compound, type philosophy that many DGIers hold near and dear. People always say it: reaching financial freedom isn't a sprint, it's a marathon. This slow, methodical, dedicated approach to running can and probably should be applied to portfolio management as well. Even if you aren't a runner, I highly recommend this book. It paints a perfectly accurate picture of what distance running looks like from the elite standpoint (especially in the college setting where there are hijinx going on as consistently as there are miles run). If you are a runner and you haven't read this book already, you're missing out. If you are John Parker, I'd love an autographed copy… just throwing that out there.
Rueben Gregg Brewer
Here are a few readings that were either important to me in my development as a dividend investor or that I believe would helpful to someone looking at dividend investing:
Although I was already using dividends in my investment process when I got the book, "The Dividend Rich Investor" by Joseph Tigue and Joseph Lisanti did a great job of summarizing why one should like dividend paying companies, particularly those that have a history of increasing dividends over time. Although the stock and mutual fund data in the book is stale at this point (15 years or so after my edition was published), the logic and data in the first section are where the real value lies. If you are looking for a concise and easy to read review of why you should care about dividends, this is a good place to start.
The other reading that I found incredibly helpful didn't come in book form. My research into dividends took me to scholarly journal articles. Three that I found most illuminating were "A Survey of Management Views on Dividend Policy" written by Kent Baker, Gail Farrelly, and Richard Edelman and published in Financial Management in 1985; "How Corporate Managers View Dividend Policy by Baker and Gary Powell", published in Quarterly Journal of Business and Economics in 1999; and "Revisiting Managerial Perspectives on Dividend Policy" by Baker, Powell, and Theodore Veit and published in Journal of Economics and Finance in 2002. One of the things I like about this trio is that they are peer reviewed scientific articles, not based on just observation or personal belief.
And, equally important, they provide at least a partial answer to the question, "What do dividends mean?" But they came to that answer by going to the horse's mouth -- the decision makers at companies paying dividends. The end result is that companies believe that dividend decisions impart information to shareholders and that companies prefer to have sustainable dividend policies over finding themselves in a position where a dividend cut is needed. That may not seem like rocket science, and it isn't, but the work helped shift my thinking from opinions and more toward facts.
My three favorites are "Dividends Don't Lie", "Dividends Still Don't Lie", and "The Ultimate Dividend Playbook" (also "The Single Best Investment").
By compiling what I gleaned from these great books ( as a whole) I was able to crystallize my own opinion that the best way for me to secure a better financial future was, and still is, dividend growth investing from the greatest dividend paying stocks in the world. I also was able to use my own way of buying and selling, which while unorthodox, works for me, as well as my family and anyone else who has chosen my approach. If I am going to buy shares of a company, I want to get a "piece of the action" with increases every year… just like the boss.
Now it's your turn to weigh in. What are YOUR favorite dividend investing reads, and how did they influence your investing style? What do you think of the choices featured here?