Book Review: The Little Book of Big Dividends by Charles B. Carlson (2007)
Genre:
Finance, Investing, Personal Finance
About the Author:
Charles B. Carlson is a well-respected investment expert with extensive experience in dividend investing. He is the CEO of Horizon Investment Services and the author of several books on stock market investing, including Eight Steps to Seven Figures and Winning with the Dow’s Losers. Carlson is particularly known for his focus on dividends as a key strategy for wealth building.
⸻
Summary of the Book
Overview
The Little Book of Big Dividends is part of Wiley’s Little Book series, which distills complex financial concepts into accessible insights for both beginner and seasoned investors. In this book, Carlson explains why dividends matter and how investors can use them to build a reliable income stream while ensuring long-term financial growth.
Carlson emphasizes that dividend-paying stocks provide a unique combination of income, stability, and capital appreciation. He introduces a practical approach to selecting the best dividend stocks, avoiding common pitfalls, and managing a portfolio that maximizes returns while minimizing risk.
⸻
Key Concepts and Lessons
1️⃣ Why Dividends Matter
One of the core principles of the book is that dividends are a key indicator of a company’s financial health. Unlike speculative growth stocks, companies that consistently pay dividends tend to be:
• Financially stable with strong cash flow.
• Less volatile compared to non-dividend-paying stocks.
• More rewarding because they offer a return even if the stock price does not appreciate.
Carlson explains that dividends act as a cushion in a bear market, helping investors earn steady income regardless of stock price fluctuations.
⸻
2️⃣ The 3 D’s of Dividend Investing: ** Dependability, Durability, and Desirability
Carlson introduces the three pillars of successful dividend investing:
✅ Dependability – A company should have a history of consistently paying dividends, even during economic downturns. He advises investors to look at Dividend Aristocrats, companies that have increased dividends for at least 25 years.
✅ Durability – The company’s business model should be strong enough to sustain future dividend payments. Factors like revenue stability, industry leadership, and competitive advantages matter.
✅ Desirability – The dividend should be high enough to be attractive but not so high that it signals financial distress (a yield above 8-10% can be risky).
⸻
3️⃣ Understanding Dividend Yield vs. Dividend Growth
• Dividend Yield = (Annual Dividend / Stock Price) × 100
• A high yield might be tempting, but it could signal that the stock price is declining due to financial troubles.
• Dividend Growth – More important than a high yield is a company’s ability to increase dividends over time, ensuring growing income for investors.
Carlson emphasizes that companies with a strong history of dividend increases tend to outperform in the long run.
⸻
4️⃣ How to Identify the Best Dividend Stocks
Carlson provides a step-by-step framework for selecting high-quality dividend stocks. He suggests investors look at:
✔ Payout Ratio – The percentage of earnings paid as dividends. A ratio below 60% is preferable to ensure sustainability.
✔ Dividend Yield – A balance between yield and company stability.
✔ Earnings Growth – Companies with stable or growing earnings are better positioned to sustain dividends.
✔ Debt Levels – Companies with excessive debt may struggle to maintain payouts during economic downturns.
✔ Industry Trends – Some sectors (e.g., utilities, consumer staples, healthcare) are more suited for dividend investing.
⸻
5️⃣ The 10-Minute System for Picking Dividend Stocks ⏳
To simplify stock selection, Carlson introduces a quick evaluation method:
• Choose companies with a dividend yield between 2-6%.
• Ensure the payout ratio is below 60% to allow room for reinvestment.
• Look for a history of dividend increases over the past 5-10 years.
• Check the company’s earnings and cash flow stability.
• Ensure the company is in a stable or growing industry.
This system helps investors quickly filter out high-risk stocks while focusing on long-term wealth creation.
⸻
6️⃣ Building a Dividend Portfolio
Carlson outlines a strategy for building a diversified dividend portfolio:
• Diversification – Hold at least 10-15 dividend-paying stocks across different industries.
• Reinvestment – Use a Dividend Reinvestment Plan (DRIP) to buy more shares over time, compounding your earnings.
• Monitor the Portfolio – Regularly review holdings, ensuring dividend sustainability.
He also introduces the concept of “buy and monitor” rather than “buy and hold,” meaning investors should keep an eye on performance and market changes.
⸻
7️⃣ Common Dividend Investing Mistakes ❌
Carlson warns against these pitfalls:
❌ Chasing Yield – A very high yield (above 10%) may indicate trouble.
❌ Ignoring Fundamentals – Even if a company pays dividends, its financial health matters.
❌ Lack of Diversification – Holding only a few stocks increases risk.
❌ Not Reinvesting Dividends – Compounding is key to long-term wealth.
⸻
Final Verdict: Should You Read This Book?
✅ The Little Book of Big Dividends is a must-read for anyone looking to build passive income through dividends.
✅ It offers a clear and actionable roadmap for dividend investing.
✅ It is beginner-friendly but also provides insights for experienced investors.
Carlson’s strategies focus on long-term financial security while minimizing risks, making it a great resource for both conservative and growth-focused investors.
⸻
Key Takeaways for Investors
Dividend-paying stocks offer stability, passive income, and capital growth.
Focus on consistency—Dividend Aristocrats are reliable.
Balance yield and safety—Avoid extremely high yields that signal financial distress.
Reinvest dividends to maximize compounding over time.
Diversify across industries to protect against market downturns.
⸻
Rating: 4.5/5 ⭐️⭐️⭐️⭐️✨
Best for: Beginner to intermediate investors looking for a simple but effective dividend strategy.
⸻
Would You Recommend This Book?
Absolutely! If you’re looking to build wealth through dividend stocks, The Little Book of Big Dividends is a valuable guide that simplifies complex investment concepts.
Happy Investing!
Genre:
Finance, Investing, Personal Finance
About the Author:
Charles B. Carlson is a well-respected investment expert with extensive experience in dividend investing. He is the CEO of Horizon Investment Services and the author of several books on stock market investing, including Eight Steps to Seven Figures and Winning with the Dow’s Losers. Carlson is particularly known for his focus on dividends as a key strategy for wealth building.
⸻
Summary of the Book
Overview
The Little Book of Big Dividends is part of Wiley’s Little Book series, which distills complex financial concepts into accessible insights for both beginner and seasoned investors. In this book, Carlson explains why dividends matter and how investors can use them to build a reliable income stream while ensuring long-term financial growth.
Carlson emphasizes that dividend-paying stocks provide a unique combination of income, stability, and capital appreciation. He introduces a practical approach to selecting the best dividend stocks, avoiding common pitfalls, and managing a portfolio that maximizes returns while minimizing risk.
⸻
Key Concepts and Lessons
1️⃣ Why Dividends Matter
One of the core principles of the book is that dividends are a key indicator of a company’s financial health. Unlike speculative growth stocks, companies that consistently pay dividends tend to be:
• Financially stable with strong cash flow.
• Less volatile compared to non-dividend-paying stocks.
• More rewarding because they offer a return even if the stock price does not appreciate.
Carlson explains that dividends act as a cushion in a bear market, helping investors earn steady income regardless of stock price fluctuations.
⸻
2️⃣ The 3 D’s of Dividend Investing: ** Dependability, Durability, and Desirability
Carlson introduces the three pillars of successful dividend investing:
✅ Dependability – A company should have a history of consistently paying dividends, even during economic downturns. He advises investors to look at Dividend Aristocrats, companies that have increased dividends for at least 25 years.
✅ Durability – The company’s business model should be strong enough to sustain future dividend payments. Factors like revenue stability, industry leadership, and competitive advantages matter.
✅ Desirability – The dividend should be high enough to be attractive but not so high that it signals financial distress (a yield above 8-10% can be risky).
⸻
3️⃣ Understanding Dividend Yield vs. Dividend Growth
• Dividend Yield = (Annual Dividend / Stock Price) × 100
• A high yield might be tempting, but it could signal that the stock price is declining due to financial troubles.
• Dividend Growth – More important than a high yield is a company’s ability to increase dividends over time, ensuring growing income for investors.
Carlson emphasizes that companies with a strong history of dividend increases tend to outperform in the long run.
⸻
4️⃣ How to Identify the Best Dividend Stocks
Carlson provides a step-by-step framework for selecting high-quality dividend stocks. He suggests investors look at:
✔ Payout Ratio – The percentage of earnings paid as dividends. A ratio below 60% is preferable to ensure sustainability.
✔ Dividend Yield – A balance between yield and company stability.
✔ Earnings Growth – Companies with stable or growing earnings are better positioned to sustain dividends.
✔ Debt Levels – Companies with excessive debt may struggle to maintain payouts during economic downturns.
✔ Industry Trends – Some sectors (e.g., utilities, consumer staples, healthcare) are more suited for dividend investing.
⸻
5️⃣ The 10-Minute System for Picking Dividend Stocks ⏳
To simplify stock selection, Carlson introduces a quick evaluation method:
• Choose companies with a dividend yield between 2-6%.
• Ensure the payout ratio is below 60% to allow room for reinvestment.
• Look for a history of dividend increases over the past 5-10 years.
• Check the company’s earnings and cash flow stability.
• Ensure the company is in a stable or growing industry.
This system helps investors quickly filter out high-risk stocks while focusing on long-term wealth creation.
⸻
6️⃣ Building a Dividend Portfolio
Carlson outlines a strategy for building a diversified dividend portfolio:
• Diversification – Hold at least 10-15 dividend-paying stocks across different industries.
• Reinvestment – Use a Dividend Reinvestment Plan (DRIP) to buy more shares over time, compounding your earnings.
• Monitor the Portfolio – Regularly review holdings, ensuring dividend sustainability.
He also introduces the concept of “buy and monitor” rather than “buy and hold,” meaning investors should keep an eye on performance and market changes.
⸻
7️⃣ Common Dividend Investing Mistakes ❌
Carlson warns against these pitfalls:
❌ Chasing Yield – A very high yield (above 10%) may indicate trouble.
❌ Ignoring Fundamentals – Even if a company pays dividends, its financial health matters.
❌ Lack of Diversification – Holding only a few stocks increases risk.
❌ Not Reinvesting Dividends – Compounding is key to long-term wealth.
⸻
Final Verdict: Should You Read This Book?
✅ The Little Book of Big Dividends is a must-read for anyone looking to build passive income through dividends.
✅ It offers a clear and actionable roadmap for dividend investing.
✅ It is beginner-friendly but also provides insights for experienced investors.
Carlson’s strategies focus on long-term financial security while minimizing risks, making it a great resource for both conservative and growth-focused investors.
⸻
Key Takeaways for Investors
Dividend-paying stocks offer stability, passive income, and capital growth.
Focus on consistency—Dividend Aristocrats are reliable.
Balance yield and safety—Avoid extremely high yields that signal financial distress.
Reinvest dividends to maximize compounding over time.
Diversify across industries to protect against market downturns.
⸻
Rating: 4.5/5 ⭐️⭐️⭐️⭐️✨
Best for: Beginner to intermediate investors looking for a simple but effective dividend strategy.
⸻
Would You Recommend This Book?
Absolutely! If you’re looking to build wealth through dividend stocks, The Little Book of Big Dividends is a valuable guide that simplifies complex investment concepts.
Happy Investing!