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Copyright 2015 by Weiss Research

Income Superstars
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Publication Date: February 2015

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without written permission from the publisher.

ISS0033

TheDividendBible

TableofContents
Introduction:
The Road to Higher Income Begins Here! ..................................................................................... 3
Chapter 1:
The Power of Dividend Stocks ........................................................................................................ 4
Chapter 2:
Two Special Types of Dividend Stocks ........................................................................................... 9
Chapter 3:
A Preferred Share Primer ............................................................................................................. 11
Conclusion:
Your Next Step Toward Inevitable Wealth! ................................................................................ 12
About the Author:
Nilus Mattive .................................................................................................................................. 13

TheDividendBible

Introduction:
TheRoadtoHigherIncomeBeginsHere!

Welcome,andthanksforjoiningIncomeSuperstars!
Thegoalofthisguide,andofmyservice,istohelpyougetterrific
incomefromyournesteggwithoutsacrificingsafety.
How?Byusingdividendstocks!
Iprobablydontneedtogointoallthereasonsdoingsoisabsolutely
critical.
YouprobablyknowalltoowellthatWashingtonisnotonlystarving
retireeswithitslowinterestratepolicies,butthatitsactivelyencouragingthemtoplowtheir
hardearnedmoneyintoriskyassetsjusttogetareturnabovezero.
YouknowthatSocialSecurityisriddledwithproblems.Thatourcountryshealthcaresystemis
adisaster.Thatpensionsandotheroldstandbysaremoreuncertaintodaythanatanyother
timeinourhistory.
Soletsjustgetrighttothesolutions.Strategiesandinvestmentsthatcanhelpyounotonly
keeppacewithrisingcostsforgas,healthcareandfoodbutalsoallowyoutohavealittle
moneyleftoverforyourselfandtheretirementyoudeserve.

Sincerely,

NilusMattive

TheDividendBible

Chapter1:
ThePowerofDividendStocks

Whenyouthinkofincomeinvestments,bondsmightbethefirstthingthatcomestomind.
Icanseewhyallbondsareincomeinvestments.
Withstocks,thesituationisnotsocutanddried.Infact,alotofstockscantclaimthetitleof
incomeinvestment.Considerthefollowingexample:

Youdecidetobuysomestockinasmallsoftwarecompany.For$1,000,
youre able to buy 100 shares of the company ($10 a share). You think
thecompanysnewsoftwarewillbeabigsuccess,earningthefirmalot
ofmoneyintheprocess.Becausethecompanyisyoungandgrowing,it
willprobablyplowallthoseprofitsrightbackintoitsbusiness.Butatthe
sametime,yourstakeinthecompanywillalsogrowinvalue.Simplyput,
yourhopeisthatyour100shareswillsellformuchmorethan$1,000by
nextyear.

Ifyourplanworksout,andyoursharesrise,youllbesittingonsomenicecapitalappreciation.
Whenyousellyourstock,youllbookthiscapitalgainandwalkawayquitehappily.
Now,allstockshavethispotentialtoriseinvalue.However,somealsogiveyouregular
paymentsalongtheway.Considerthisexample:
Insteadofbuyingastakeintheyoungsoftwarecompany,youdecideto
plunkyour$1,000downon50sharesofawellknowntobaccocompany.
Becauseitsfairlyoldandestablished,youdontexpectthecompanyto
expandasrapidlyasthatsoftwarefirm.Butyoualsodontexpectitto
plowallofitsprofitsbackintothebusiness.Rather,youexpectthe
companytodistributesomeofitsprofitsbacktoyouandtheother
ownersonaregularbasis.
Whencompaniesrewardtheirownerswithregulardividends,thingsgetreallyinteresting:Your
tobaccosharescanstillriseinvalue!However,whenyouinvestindividendpayingstocks,you
havetheaddedbenefitofgettingpaidaregularfixedamountwhileyouwait.
Itsthiscombinationofcapitalappreciationanddividendincometotalreturnthatgives
youthebestofbothworlds.
Itmaysoundlikeanobrainertoyou,butitsamazinghowmanyseasonedinvestorsstillignore
thepowerofdividends:Simplybyrecognizingthatonlysomecompaniesdistributeaportionof
theirprofitstotheirshareholdersgivesyoualegup.
TheDividendBible

However,Idontthinkitsenoughtopickafewdividendpayingstocksandcallitaday,
especiallynotinanincomeportfolio!
Thatswhyyoushould
LookforStockswithSteadilyIncreasingDividends
Ifyouwantsolid,longtermtotalreturns,Iknowagreatplacetolook:Companiesthathave
longhistoriesofsteadilyrisingdividends.
Bydefault,mostofthesefirmswillhavefairlystablebusinesses,steadyearnings,and
establishedpositionsintheirrespectiveindustries.Theresnootherwaytheydbeableto
consistentlypayoutmoreandmoremoneytotheirshareholders!
Ofcourse,thatsjustthebeginning.Theresanevenbiggerbenefitofowningstockswith
steadilyrisingdividendsanditdoesntgetmuchplaybythemainstreaminvestment
community.Theconceptiscalledyieldoncost.
Sayyoubuyastockfor$10ashareanditspayinganannualdividendof$0.50.Youre
immediatelygettinganiceyieldof5%.Notbad!
Now,whatifthecompanyboostsitsdividendby$0.05ashareeveryyear?Tenyearslater,the
stockwillpayanannualdividendof$1ashare.
Assumingthecompanyhasbeendoingwell(thisisalmostagivenifitsbeenabletoincrease
itsdividend),yourstockhasprobablyriseninvalue.Letssayitsdoubledto$20ashare.
Ifyourdividendisnow$1,thestocksyieldisstill5%(1dividedby20).Butisthattheyield
youreactuallygetting?
Afterall,youonlypaid$10forthestock.Thatannualdividendof$1actuallyrepresents10%of
youroriginalpurchaseprice!Thatsyouryieldoncost.Manyinvestorsfailtorecognizethis
simplefact.
Sogivenproperselectionandabitofpatience,buyingandholdingstocksthatsteadily
increasetheirdividendscanproducelevelsofincomethatarevirtuallyimpossibletofind
fromotherinvestments.
Willyourfriendsbeimpressedwiththispatient,longtermapproach?Maybenot.Butinmy
view,investingisnotaboutexcitementorbraggingrights.Itsaboutmakingmoney.

TheDividendBible

Andherestheirony:Whileyourfriendsareoutchasingtheirsocalledhottips,manyof
theseunexcitingcompaniesarequietlydoubling,tripling,andquadruplingboththeirshare
pricesandtheirpaymentstoshareholders.
Intodaysdifficultenvironment,manycompanieshavestoppedincreasingtheirdividends,and
somehaveevendiscontinuedtheirpaymentsaltogether.ButIwantyoutoknowthatthereare
stillplentyoffirmsrewardingtheirshareholderswithhigherandhigherdividends.
Imgoingtodomybesttohelpyoufindthem,usingthefollowingtwogoldenrules:
#1.Wewillinvestincompanieswithsteadilyrisingdividendswheneverpossible.
Ivealreadyexplainedwhyabove.
#2.WewillNOTseekoutstockswithyieldsthataretoogoodtobetrue.Insteadwewill
concernourselveswithdividendSECURITY.
Manyincomeinvestorshaveanoverlysimpleapproachgoforthestockswiththehighest
possibleyields.Period.
Butlookingonlyatastocksyieldcouldbeabigmistake.Ifanything,ayieldthatiswayabove
averageisoftenagiantstopsign.Afterall,whenacompanyisdoingpoorly,itsstockpricefalls.
That,inturn,pushesupthestocksyield.
Sure,ifthestocksweaknessistemporary,youcouldhaveagreatinvestmentonyourhands.
Sometimes,themarketservesuptheseraregifts.
However,themorelikelyscenarioisthatthecompanywillcontinuetostruggle.Ifitstruggles
longenough,itmightevenconsidercuttingitsdividend.AndwedoNOTwantthatinour
incomeportfolio.
SohowwillImakemydecisions?
First,Iwilllookattherecenttrendinthestocksdividendpayments.Havetheybeenrising,
falling,orstalling?
Second,Iwillcheckoutthecompanyitself.Thisentailslookingatitsfinancialstatements,past
earningsreleases,competitiveposition,andindustryfundamentals.
Third,Iwillfavorsectorsandindustrieswhereitsnormaltopayoutaboveaveragedividends,
butalwayskeeptheyieldincontext.
Letmeelaborateonthatlastpointwithanexample:Manyutilitiessporthighyields.Therefore,
autilitywithahighyieldshouldntnecessarilyarousesuspicion.
TheDividendBible

Ontheotherhand,autilitywithayieldthatsthreetimesashighasthoseofotherutilitystocks
shouldbeinvestigatedmoreintenselybeforeyouputdownyourhardearnedmoney.
Now,HereAreTenThingstoKnowAboutDividends
#1.Ingeneral,acompanycanchoosetoinitiate,suspend,raise,orloweritsdividendatany
time.Dividendsarenotguaranteed.
#2.However,ascashpayments,dividendsarenonrefundable.Unrealizedcapitalgainscan
disappearifastockfalls,buttheminuteadividendisdepositedintoyourbrokerageaccount,
itsyourstokeep.
#3.Dividendsareoneofonlytwowaysyoucanmakemoneyfromstockswithoutlosing
ownership.(Coveredcalls,whichItalkaboutinaseparatereport,aretheotherway.)
#4.Dividendsareusuallypaidinquarterlyinstallments,buttheycanalsocomemonthly,
annuallyoronsomeotherschedule.
#5.Somecompaniesalsoissuespecialonetimedividends.Forexample,ifacompanysellsoff
aportionofitsbusiness,itmightchoosetodistributetheproceedstoinvestors.
#6.Astocksindicateddividend(alsoknownasthecurrentdividend)istheamountan
investorshouldreceiveoverthenextyear.Forexample,ifastockcurrentlypaysaquarterly
dividendof$0.25ashare,itsindicateddividendis$1ashare.Specialdividendsarenotincluded
intheindicateddividend.
#7.Investorswilloftentalkaboutastocksyield.Theconceptissimilartobondyieldsi.e.
yieldisequaltotheannualregulardividendpaymentdividedbythestockscurrentprice.A
yieldisalwaysexpressedasapercentage.Forexample,a$10stockthatpaysanannual
dividendof$1asharehasa10%yield.
#8.Unlikeearningsorsales,adividendisnotanabstractaccountingconstruct.Acompanyonly
hastwochoices:Paythedividendordont.Thisisanimportantfact:Ifacompanydoesnthave
themoney,itcannotcoveritsdividend.
#9.Historically,stocksthatpaydividendsarelessvolatileandhaveweatheredbadmarkets
betterthantheirpeersthatdontpaydividends.Forexample,in2002theworstyearfor
stocksindecadestheS&P500fell23%.DividendpayersintheS&P500onlylost11%while
nonpayersfell30%!
#10.Mostcommonstockdividendscomewithfavorabletaxtreatment,too.

TheDividendBible

Whenyouthinkofdividendshares,alotofbluechipnamesprobablycometomindand
rightfullysomostofAmericasoldest,mostrecognizedfirmsdoleoutregularpaymentsto
theirinvestors.
Restassured,IllcontinuerecommendingsomeoftheminIncomeSuperstars.Aswellastheir
foreigncounterparts!
Buttherearealsosomeothermoreexotictypestoconsider

TheDividendBible

Chapter2:
TwoSpecialTypesofDividendStocks

Beyondthebasicdomesticandforeigndividendpayingcompaniesyourealreadyfamiliarwith,
therearealsootherinterestingtypesofdividendsharesthatareoffmostradarscreens.And
someofthesehaveattractivefeaturesthatmakethemequallyattractiveinanincomeportfolio.
Inthischapterwellcovertwoofthem,startingwith
RealEstateInvestmentTrusts
Inshort,thesecorporationsinvestinrealestateandmust,bylaw,distributeatleast90%of
theirincometoinvestorsintheformofbigdividends.Inexchange,theyarenottaxedatthe
corporatelevel.
MostREITsown,operate,andmanagepropertiesthoughsomeareengagedstrictlyinthe
financingsideofthebusiness.Forexample,AnnalyCapitalManagementownspoolsof
mortgagesratherthanproperties.
Howcanthatbe?Well,accordingtoU.S.law,atleast95%ofaREITsincomemustcomefrom
dividends,interestandpropertyincome.Andatleast75%ofitstotalinvestmentassetsmustbe
inrealestate.AndREITscanalsoderive75%ormoreoftheirgrossincomefromrentsOR
mortgageinterest.
ThetypeofpropertiesownedvariesdependingontheREIT.Somepopularareasoffocus:

Officebuildings
Apartments
Shoppingmalls
Storagefacilities

AlotofREITShavebeenonarollercoasterbecauseoftherealestateboom,bust,and
subsequentstockmarketrecovery.Somearehighlysensitivetochangesininterestrates,too.
Inmyview,thatmeansyouhavetobeveryselectivewhenaddingREITStoyourincome
portfoliorightnow.Differenttypesofpropertiesthriveduringdifferentpointsduringan
economiccycleandyieldscanvarydrasticallyassharepricesmoveupanddown.
ThegoodnewsisthatcarefullychosenREITSareagreatwaytogetadditionalincomeANDthey
addverynicediversificationintheprocess!

TheDividendBible

Ofcourse,theresanotherevenlesswellknowntypeofdividendstockthatIlikeevenbetter
thanREITs
BusinessDevelopmentCompanies
Thisspecialtypeofcompanyhelpssmallbusinessesandstartupsgetthefinancingtheyneed
togrow.
AndlikeREITs,theyregrantedspecialtaxtreatmentaslongastheydistributeatleast90%of
theirincometoinvestors.
BDCsareaverysmallniche,witharelativelyshortlistofpubliclytradedcompaniesavailable.
ButIdotypicallyrecommendatleastoneatanygiventime.Youllseemycurrentpicksinyour
regularIncomeSuperstarsissues.
FornowjustrememberthatBDCsarenaturallytiedtocapitalmarketsandperiodsofgrowth.
Infact,onewaytolookatthemisasiftheyredividendgushingfundsofhighgrowth
companies(manyofwhichcannotbeinvestedinanyotherway).

TheDividendBible

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Chapter3:
APreferredSharePrimer
Wheninvestorstalkaboutpurchasingdividendstocks,theyalmostalwaysmeancommon
sharesofacompany.Butthereisatleastoneotherclassofstockthatislargelyignored
preferredshares.
Asthenamesuggests,preferredstockgivesitsowneraleguponcommonshareholders,
especiallywhenitcomestodividends.Preferredshareholdersmayreceivelargerpayments,
andcompaniesarerequiredtopaythesedividendsbeforedistributionsaremadeto
commonshareholders.Notethatthisdoesntmeanthedividendisguaranteed.Itsimply
meansthatwhenitcomesdowntothewire,preferreddividendsaregoinginthemail
beforecommondividends.
Shouldthingsgetreallybad,preferredstockholdersalsogettopickthecarcassbefore
commonshareholders.Ofcourse,UncleSam,securedcreditors,andbondholdersareeven
furtherupthelinesotheremaynotbeanythingleftanyway.
Thedividendpaymentsonpreferredscanbefixed,adjustable,ordeterminedbyperiodic
auctions.Somearecumulative,whichmeansacompanymustaddanymisseddividendsto
futurepaymentsduringthetimethestockisheld.
Ifitsstartingtosoundlikepreferredsharesarelikethelovechildrenofcommonstocksand
corporatebonds,thatsbecausetheyare.
Now,somecriticsarguethatpreferredsactuallygiveinvestorstheworstofbothworlds
limitedparticipationingrowthofearningsanddividendswithfewerrightsthanbondholders.
However,savvyinvestorslikeWarrenBuffetthaveusedthemwithgreatresults,andtheresno
reasonyoucantdothesame.Ifyousnooparoundthemarketforpreferredshares,youll
quicklydiscoverthatHUGEyieldsarecommonplace.
Justoneproblem:Manyofthepreferredstocksoutthereroughly80%,infactareissued
byfinancialcompanies.Youmightnotliketheideaofinvestinginthesecompaniesrightnow,
especiallysincesomanyarestillstrugglingwithfinancialcrisishangovers.
Inshort,Iwouldabsolutelynotrecommendinvestinginindividualpreferredshareswithouta
verystrongunderstandingofwhatyouregettinginto.
Caseinpoint:Duringtheheightofthefinancialcrisis,Istartedtalkingtooneofmyneighbors.
Whentheconversationturnedtothemarkets,Ilearnedthatthisguyusedtobetheheadof
NorthAmericanfixedincomeoperationsforamajorEuropeaninvestmentbank.Clearly
someonewhounderstoodfinance,markets,andrisk,right?Well,thenheproceededtotellme
howhedbeenbettingheavilyonpreferredfinancialsharesinhisownportfolioandlosing
moneyhandoverfist.

TheDividendBible

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Ineverdidseehimagainbeforewemovedoutoftheneighborhood.Butsincemanypreferred
stockslost60%,70%or80%duringtheworstofthedowndraft,Icanonlyguessthatsomeof
hisholdingsgotkilled.
Inaddition,therecanbemultipleclassesofwhatappeartobethesameshares.Yieldsarenot
alwayswritteninstone.Tickersymbolsandnamingconventionsgetconfusing.Thelistof
pitfallsgoesonandon.
Fortunately,ifIeverrecommendanindividualpreferredshareinIncomeSuperstars,Illdothe
homeworkforyou.
Andifyouwanttopursuepreferredsharesonyourown,youhaveanotheroptionavailable
mutualfundsandexchangetradedfundsthatspecializeinpreferreds.

Conclusion:
YourNextStepTowardInevitableWealth!
IhopethisguidegaveyouasolidintroductiontodividendstockswhichIllberecommending
quiteofteninyourregularIncomeSuperstarsissues.

Ifsomeofthisseemsoverwhelming,dontworry.Imgoingtobetherewithyoueverystepof
thewaytellingyouwhatspecificstocksIlikebestforthefutureandintroducingyouto
evenmoreuniquecategoriesofdividendstocksandotherincomeinvestmentsgoingforward.
AndIwillalwaysdomybesttoexplainthingsinastraightforwardway,withveryspecific
instructionssoyoureneverleftwonderingwhattodo.

Soletsrollupoursleevesandgettowork.Wevegotincometostartgenerating!

TheDividendBible

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Abouttheauthor:
NilusMattiveistheeditorofIncomeSuperstars,amonthlypublication.

Previously,NilusworkedonWallStreetforvariousresearchfirms.HiscareerbeganatJono
SteinbergsIndividualInvestorGroup,wherehewrotearegularinvestmentcolumn.Later,Mr.
MattivespentfiveyearsatStandard&Poorseditingthecompanysflagshipinvestment
newsletter,TheOutlook.Duringthattime,Nilusalsowrotehisfirstfinancebook,TheStandard
&PoorsGuidefortheNewInvestor.ItwaspublishedbyMcGrawHillin2003,andtranslated
intoChineseayearlater.
Nilusresearchandanalysishasappearedonanumberofinvestmentwebsites,including
BusinessWeek,DowJonesMarketWatchandFoxNews.Hefrequentlydiscussesdividends,
incomeinvesting,andretirementmattersonpopularinvestmentshowssuchasTradersNation,
InvestExpress,WallStreetShuffle,andMoneyMatters.

TheDividendBible

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