Book SummaryDividend Growth Investing, by Freeman Publications

1-Page Summary1-Page Book Summary of Dividend Growth Investing

The prevailing environment of meager yields compels the exploration of diverse approaches to generate revenue.

The decline in returns from savings accounts and bonds has driven investors to seek out alternative revenue streams.

Previously, individuals could rely on the steady income from bonds and savings accounts, but the current environment of diminished yields is largely due to the sustained environment of minimal interest earnings.

The insights provided by Freeman Publications suggest that the time when individuals could rely exclusively on the income from savings accounts or bond interest for a comfortable retirement is no longer current. In the early 1980s, certificates of deposit, which are conventional savings tools offered by banks, provided investors with a return of 18%. In the wake of the financial crisis that lasted from 2007 to 2009, to stimulate economic growth, institutions including the US Federal Reserve, which are responsible for monetary policy, significantly lowered their primary rates of interest to near-zero levels. The strategy of keeping interest rates at remarkably low levels has led to a significant reduction in the returns of conventional income-generating assets such as bank savings accounts and bonds. In the 2000s, interest rates on Certificates of Deposit ranged between 3% and 5%, yet following the economic downturn, they fell to below 1%. As of October 2020, the Way2Save Savings account at Wells Fargo provides an interest rate of just 0.01%.

The economy has been permeated by the pervasive effects of these low interest rates, resulting in a sequence of unexpected consequences. Explorers of new investment pathways are seeking opportunities that yield substantial returns with a risk profile comparable to that of conventional savings accounts or bonds. Investment options offering both high yields and a comparable degree of safety are scarce. Should the returns from your investments diminish from 5% to 1%, you would be forced to either withdraw from your initial investment or seek out higher-risk investment opportunities to make up for the loss in earnings.

Other Perspectives

• Diminished yields do not universally apply to all bonds; for instance, certain corporate or high-yield bonds may still offer returns that could support some investors in retirement.
• Highlighting the 18% return on certificates of deposit from the early 1980s without acknowledging the extremely high interest rate environment of the time could give an incomplete picture of the investment landscape.
• Lowering interest rates is a common tool for stimulating economic growth, but it is not the only method; fiscal policy and regulatory changes also contribute significantly to economic recovery efforts.
• Some specialized savings accounts, like high-yield online savings accounts, may offer higher interest rates than traditional bank savings accounts, even in a low-interest-rate environment.
• The statement does not consider the potential for regional or local variations in interest rates, which might mean that some areas experienced different rates on Certificates of Deposit.
• The 0.01% interest rate is a nominal figure and does not reflect the annual percentage yield (APY), which takes into account the effect of compounding and could provide a slightly higher effective return to the account holder.
• The idea that the consequences are unexpected may not take into account the extensive research and historical data on the effects of monetary policy.
• This pursuit may also drive investors towards unconventional and illiquid assets, which could be problematic if they need to access their funds quickly.
• Some structured products or market-linked investments can provide a balance of risk and return, offering protection of principal with the potential for higher returns based on stock market performance.
• Some investors may have the option to delay retirement or supplement their income through part-time work, thus reducing the need to withdraw from their investments or seek higher-risk opportunities.

Investors should broaden their search to encompass alternatives to traditional bond investments in order to achieve the income required for their financial goals.

The present climate of minimal yields indicates that retirees must seek alternatives to conventional fixed-income instruments like bond yields and interest payments to support their financial requirements. If the performance of your investments fails to outpace the average yearly inflation rate of around 2%, then the real value of your assets is effectively eroding as time passes. Moreover, if your strategy is based on using the initial investment to manage expenses, this will lead to a gradual decrease in the income you receive from dividends or interest over time. Maintaining a consistent annual income can be difficult as your starting funds diminish.

To tackle this problem, the author recommends exploring alternative methods for generating revenue. Throughout our exploration, the book will highlight the prospects that lead to greater returns.

Practical Tips

• Consider investing in community development financial institutions (CDFIs), which provide financial services in underserved markets. CDFIs often offer notes or bonds that support community development projects, combining the potential for financial return with social impact.
• Diversify your retirement portfolio by exploring peer-to-peer lending platforms where you can lend money directly to individuals or small businesses online, earning interest on your loans. This approach can potentially offer higher returns than traditional fixed-income instruments. For example, you might start with a small amount you're...

Dividend Growth Investing Summary Avoid common pitfalls of income investing like exorbitant fees and the temptation of misleadingly substantial dividends.

The substantial fees imposed by financial advisors and mutual funds can significantly diminish the returns on investments.

Index-based and exchange-traded funds offer an economical choice that can lead to greater returns compared to those of actively managed funds.

The author stresses the necessity for investors who prioritize income to make judicious decisions in order to maintain minimal expenses, whether they opt for active or passive investment management. Mutual funds typically charge high fees to compensate fund managers for their work in allocating capital across multiple assets. Allocating funds to a specific and limited range of assets generally leads to increased expenses. Passive index-tracking funds have associated costs for the management of their asset portfolios. Exchange Traded Funds, also known as ETFs, have streamlined the investment process and concurrently lowered the costs involved in recent years. Exchange-traded funds that track the broader market's movements generally charge an annual fee of 0.03%, in comparison to the higher fees of 1% or more that are often associated with mutual funds. Some closed-end funds have the potential to charge...

Dividend Growth Investing Summary Investing in dividends is fundamentally about receiving a portion of a company's profits in the form of dividends, the gradual growth of these payments, and the resulting rise in the value of the investment.

The reliability of a company's dividend payouts can be assessed by looking at the proportion of earnings allocated for shareholder dividends.

A carefully adjusted rate of profit distribution guarantees that shareholders are fairly compensated while also retaining adequate capital for the growth of the business.

The author underscores the importance of the dividend payout ratio as a crucial indicator for assessing stocks that pay dividends, pointing out that a notably high payout ratio often suggests the possibility of a forthcoming decrease in dividend payments. To determine the payout ratio, one must divide the dividend payment of the company by its net earnings. A firm that distributes all its earnings as dividends retains no capital for the improvement or reinvestment in its business activities.

Practical Tips

• Create a personal investment game where you allocate virtual funds into different "companies" (which could be categories like savings, stocks, retirement funds, etc.). Periodically review your "investments" to determine how much profit to reinvest for growth and how much to "distribute" to yourself, mimicking the shareholder compensation process. ...

Dividend Growth Investing Summary The manual offers comprehensive instructions on choosing premier stocks, such as real estate investment trusts, which are celebrated for their regular distribution of dividends.

The publication highlights seven notable stocks, including AbbVie, Chevron, IBM, and others, with AT&T and ExxonMobil among them, all distinguished by their progressively rising dividends.

These stocks provide appealing dividend yields, robust business fundamentals, and potential for growth.

The publication from Freeman highlights a select group of stocks that meet their criteria for profitable, high-yield dividend shares, citing examples such as AbbVie, Chevron, IBM, and includes Kinder Morgan in this exclusive list. The firm known as People's United Financial. These stocks offer high yields, have stable business models, and are operating in sectors that are poised to do well as the global economy rebounds from the pandemic.

Other Perspectives

• IBM has faced challenges in adapting to the rapidly changing technology sector, and its growth potential may not be as strong as other tech companies that are more innovative or have a larger market share.
• The list may not reflect the latest developments or unforeseen events that could affect the performance of People's United Financial after the publication of Freeman's report.
• Stability in business models...