“Dividend Growth Investing” by Freeman Publications is a detailed look at one of my favorite pastimes. I have been a dividend growth investor for over two years, and I still love reading other people’s take on this vital strategy.
Dividend growth investing (DGI) is the process of investing in companies over time. As time progresses, the power compounding, dividend increases, price appreciation, and dividend reinvestments create a passive income stream for the investor.
The authors give their eleven principles to building a solid portfolio of strong dividend companies inside the book. I gained a lot of new information, especially on dividend taxes, return of capital, master limited partnerships, and value investing. With that, let’s jump into my five takeaways:
1) Master Limited Partnerships usually pay a high dividend. Commodities companies usually spin-off an MLP for accounting purposes. Understanding what the goal of your MLP is will allow you to invest in solid companies.
2) When it comes to companies that handle natural resources, there are three main types: upstream, midstream, and downstream. Midstream companies are the most stable and where we want to allocate our investments.
3) Return on Capital (ROC) is different from dividend income. ROC lowers the cost basis of your investment. To summarize, the cost basis of your investment decreases, allowing you to avoid taxes until you sell the asset. At that point, you would pay capital gains on the difference between the sale price and the cost basis.
4) Dividends can either be qualified or non-qualified. The government taxes non-qualified dividends at the ordinary tax rate—the same tax rate as your earned income. Qualified dividends have lower tax brackets once you achieve long-term status (held for over one year).
5) Alternate investments can make up 5-10% of your portfolio. Alternative investments are not tied to a business or company and include collectibles, gold, silver, crypto, cards, cars, art, and jewelry.
Most investors stay away from MLPs because of the complicated tax form named K-1. Because of the structure, investors would have to file taxes in each state in which MLP operates. Plus, the K-1 usually comes in the mail past the tax season deadline. I know that I have avoided buying MLPs because of this reason.
Dividend growth investing is a great way to build an income stream for retirement. The book recommends that you spend at least 30 minutes a day reading about stocks. I would say even more than that—at least an hour.
If you don’t have that kind of time, the book recommends you invest in passive dividend investments such as dividend growth ETFs.
If you are looking to start dividend growth investing, this is the book for you. It takes a deep dive into the topic, and you will be an entry-level expert once you complete the book. I highly recommend this book for those looking to start investing in the stock market and dividend-paying companies.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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