Saturday, August 25, 2012

Book Review: The Dividend Toolkit

The Dividend Toolkit (2012) by Matt Alden

I was already familiar with the author of this e-book from his blog, Dividend Monk, which I visit regularly for his excellent stock analyses. The book is a guide for enabling an individual investor to build and manage a portfolio of dividend growth stocks. It is divided into six "core" sections and six "advanced" sections that address various topics of relevance to dividend growth investors.

The core sections begin with a discussion of living simply and building wealth, which addresses the psychological advantages of dividend growth investing and how it represents an effective wealth-building strategy. The compounding power of dividend growth investing is illustrated in the next section, which provides easy-to-understand numerical examples. The third section, entitled "Explore a Corporation," delves into how corporations are formed and how they operate and grow over time, using the fictitious example of a cafe business. I think it is the best introduction to the basics of a corporation that I have ever read. The next section covers some investing basics, including definitions of common stock metrics and a good explanation of why absolute stock price is irrelevant; what matters is the stock price relative to the company's value.

The fifth and sixth core sections focus more specifically on dividend growth investing. The author provides eight excellent reasons for investing in dividend growth companies, covers some important dividend metrics, and gives a detailed example of the long-term compounding of a dividend income stream. He then discusses how to build and manage a dividend growth portfolio, highlighting the traits an investor should seek in a core position and considering how an investor might go about diversifying his portfolio.

The more advanced sections include an analysis of stock/bond asset allocation, a consideration of problems with index investing that includes a thorough discussion of shareholder rights, an overview of MLPs and REITs, and three sections associated with stock analysis. Regarding the last point, the author explains how to quickly and effectively analyze dividend growth stocks both quantitatively (e.g., assessing valuation metrics) and qualitatively (e.g., assessing competitive advantages). The analytical method is too comprehensive to summarize here, so I will simply note that it is superb and better than any other that I have encountered in the many investing books I have read. One of the highlights of the quantitative analysis is the coverage of discounted cash flow (DCF) analysis and the dividend discount model (DDM). Not only does the author clearly explain how they work, but he implements them in spreadsheets that accompany the book and are very easy to use. I have now started doing DCF and DDM calculations as part of my own stock research.

In summary, this book is an excellent guide for dividend growth investors. It covers basic and advanced topics in a comprehensive yet readily understandable manner. I recommend the book to anyone who is interested in becoming a successful investor by building a sustainable and growing stream of income from dividends.

Note: I read this book in August 2012.


  1. I really appreciate the review, deedubs.

    Also, the chart on your strategy page is a great resource.

    1. Hi Matt,

      You're welcome! I am always delighted to come across a great new book on dividend growth investing.