One of Morningstar's newsletter editors, Josh Peters, has just written a new book on dividend investing. The Ultimate Dividend Playbook will appear in bookstores nationwide this month. The following is an excerpt from Josh's book:
The Ultimate Dividend Rules
- Capital gains are an unreliable source of income. If you need income from stocks, get it from dividends instead.
- Dividends are the ultimate source of a stock's value for shareholders.
- Current dividend yield plus dividend growth indicates a stock's future total return prospects.
- Avoid stocks with unsafe dividends.
- Past rates of dividend growth are a useful guide, but a forward-looking estimate is much more relevant.
- The real world is unpredictable, so demand a margin of safety by requiring a higher total return prospect than you might otherwise settle for.
- Start your portfolio planning with a target yield; then buy a group of stocks that, as a group, can deliver the income you seek.
- Growing dividends are usually safer dividends as well. Within your target yield, seek as much growth as possible.
- The more companies you evaluate before buying, the better your eventual portfolio will look and perform.
- Consider selling when a stock's dividend no longer looks sustainable. Beyond that, let opportunity cost be your guide. Unless a new candidate offers a materially higher prospective return than the least attractive stock you already own, you should feel no need to trade.
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