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In the world of investing, there are many income strategies. And dividend investing has consistently proven its value. Charles B. Carlson’s “The Little Book of Big Dividends” has long been a useful guide for investors.

It’s helped many readers learn how to build wealth with dividend stocks. That’s why we’re sharing this review today. This guide will offer insights and nuggets of wisdom from the book. Whether you’re a beginner or more advanced, there’s plenty to unpack and learn.

Little Book of Big Dividends Review

We’ve added our book review below. Although, by clicking on the book, you can find more details and other readers’ reviews as well…

The Little Book of Big Dividends by Charles B. Carlson

Dividends have been a cornerstone of investing. They’ve provided close to half of the total stock market’s returns for close to a century. From 1926 to today, dividends have contributed 43% of the total return of the S&P 500 index. This fact alone underscores the role dividend stocks play with investing. They’re the foundation of many investment portfolios.

Markets continue to go up and down. Volatility is the norm, and interest rates continue to bounce around as well. However, the best dividend stocks can weather the short-term storms. They can provide steady income and act as a strong base for investment portfolios. Carlson’s book shows that dividends can also be a key signal of a company’s financial health. Companies with good long-term growth can continue to pay bigger dividends each year.

Carlson’s Big Safe Dividend (BSD) Approach

At the heart of Carlson’s philosophy is a big concept. You’ll learn about the Big Safe Dividend (BSD). This approach warns investors to not chase the highest yields. In many cases, high dividend yields can be a red flag. Instead, you’ll find that The Little Book of Dividends focuses on picking specific companies. The best ones offer a balance of good dividend yields and financial stability. This helps to maintain and grow the dividends over time.

The BSD strategy has multiple steps for analysis:

  1. Payout Ratio Analysis: Helps to ensure that companies don’t overextend when paying dividends. This is a key for finding consistent dividend stocks.
  2. Cash Flow Evaluation: Looking beyond earnings to find a company’s ability to generate cash flows.
  3. Fundamental Analysis: Looking at the total financial health and market position of the company.
  4. Dividend Growth History: Seek out companies with a track record of consistent dividend increases.

This full approach can help investors avoid yield traps. These are dividend stocks with high yields that are likely to be cut. They’re often unsustainable.

Quadrix Scoring System: A Data-Driven Book

One of the most useful tools in the book is Carlson’s Quadrix stock-rating system. This system ranks over 4,000 stocks. And this includes American Depositary Receipts (ADRs). Overall, this scoring system is based on more than 100 variables across six key categories:

  1. Momentum
  2. Quality
  3. Value
  4. Financial strength
  5. Earnings Estimates
  6. Relative Stock Price Performance

By using this scoring system, investors can better track down the best dividend stocks. The Quadrix system gives a data-driven approach to picking out stocks. This also helps to remove emotional biases. This can improve your overall investment decision-making process.

Dividend Reinvestment: The Power of Compounding

There’s another big theme in The Little Book of Big Dividends. You’ll learn about the power of reinvesting dividends. This strategy combines the benefits of compound interest with dollar-cost averaging. Investors can automatically buy more shares during both high and low prices. The market will continue to bounce around. However, the best companies will move higher over the long-term.

Carlson shows how reinvesting dividends can boost returns over time. For example, let’s look at a starting investment of $10,000. You put it into a stock that yields 3% annually. It also has a 5% dividend growth rate and 8% share price appreciation. This investment would then grow to over $100,000 in 20 years. That’s assuming you reinvest the dividends. Without reinvestment, the same investment would only grow to about $70,000.

Direct Purchase Programs for Bigger Dividends

One of the lesser-known strategies shown in the book is buying stocks directly from companies. You can do this through direct purchase plans (DPPs). Some of these programs even offer discounts on stock prices. This can hand some investors an extra edge when playing the long game.

Carlson explains how DPPs can be useful for dividend investors:

  • Lower Transaction Costs
  • Ability to Invest Small Amounts Regularly
  • Automatic Dividend Reinvestment
  • Potential Discounts on Share Purchases

Not all companies offer DPPs. However many blue-chip dividend payers have in the past. Overall, this is another useful tool to add to your investing toolbelt. It can help with building a better dividend portfolio.

The Advanced BSD Formula: Stock Selection

With The Little Book of Big Dividends, you’ll find that Carlson also gives readers an advanced BSD formula. This helps assess dividend stability and growth using 10 key factors.

This formula has shown great results. It’s outperformed the S&P 1500 Index by more than 6% annually from 1994 to 2008. On top of that, it had lower risk as measured by standard deviation.

The advanced BSD formula includes factors such as:

  • Dividend Yield
  • Five-Year Dividend Growth Rate
  • Payout Ratio
  • Debt-to-Capital Ratio
  • Return on Equity
  • Earnings Stability

By combining these factors, investors can find great companies. They can lock in good dividend yields from companies that have financial strength. This helps to maintain and grow those dividends over time.

Little Book of Big Dividend Editions and Updates

This dividend investing book has an updated edition. It addresses new markets that dividend investors must navigate:

Technological Disruption: Traditional dividend-paying sectors like utilities and telecom are facing challenges. Technology is moving exponentially. Carlson discusses how to find companies that are adapting to these changes and maintaining their dividend strength.

Global Dividends: Many international markets offer solid dividend yields. The Little Book of Big Dividends gives strategies for adding global dividend stocks into a portfolio. This comes with balancing higher yields with currency and geopolitical risks.

ESG Considerations: Environmental, Social, and Governance (ESG) factors are important for many investors. They can impact a company’s long-term sustainability. Carlson shares how to include ESG criteria. This is for picking dividend stocks without sacrificing yield or growth potential.

Economic Uncertainty: With new economic headwinds, the book gives strategies for building a resilient portfolio. This can help weather many market conditions.

Dividend Investing Strategies

The Little Book of Big Dividends provides investing theories. However, it also offers practical advice. By reading this book, you can learn about:

Portfolio Construction: Carlson recommends a diversified approach. He suggests that investors hold at least 10-15 dividend-paying stocks. They should also span various sectors to lower risk.

Monitoring and Rebalancing: The book highlights the value of regular portfolio review. It gives useful guidelines on when to sell a dividend stock. Also, you’ll learn how to rebalance for optimal diversification.

Tax Considerations: With an eye on after-tax returns, Carlson gives strategies for managing a dividend portfolio. He shares insight into both taxable and tax-advantaged accounts.

Dividend ETFs and Mutual Funds: For investors who prefer a more hands-off approach, the book explores dividend ETFs and mutual funds. You’ll find both the pros and cons to these investments.

Conclusion: The Little Book of Big Dividends Review

This book remains a top resource for investors. It can help you harness the power of dividend stocks. By combining time-tested principles with modern analytical tools, Carlson gives a roadmap for building a robust, income portfolio.

The book’s enduring message is clear. When done with diligence and a focus on quality, dividend investing can provide a reliable stream of income. Whether you’re a retiree or a young investor, or anywhere in between, the strategies in this book offer lots of value.

Best Books on Dividend Investing

We hope that our reviews of The Little Book of Big Dividends helped answer your questions. It’s worth picking up. However, there are lots of great books out there. It makes our list of the top dividend books. Check that out along with these other top investing books…