Book Review: Dividend Growth Investing By Robert J. Albers

by: FinancialStorm

If you are reading this review on Seeking Alpha and consider yourself to be a Dividend Growth Investor, then Robert J. Albers' Dividend Growth Investing: Safe, Growing Income Streams Using Dividends may not be for you. If, however, you know someone who might have an interest in moving beyond investing in index funds but finds the process of developing an investment strategy and of selecting stocks to be intimidating, then this is a great book to hand them. I bought this book in June 2012: it was the catalyst that made me think I could develop a portfolio that might achieve my personal goals.

Robert Albers is a FINRA neutral arbitrator, involved with settling disputes in the securities industry. He is a self-directed investor. To me, it is important that the author is not a full time money manager as he understands that individual investors can and should devote significant time to their investments but that they also are not doing so as a full time job. Before writing the book, Dr. Albers spent seven years creating dividend growth portfolios in an effort to determine if dividend growth investing was possible and to determine what was necessary for an individual to invest similarly.

One aspect of the book that I liked immediately was the author's realistic approach to writing what is effectively an investment advice book. The author does not promise to make you rich quickly. Rather, he goes so far as to assert that the approach he espouses will not be for everyone as it does require a time commitment and work to implement. Even worse, he points out that building an initial portfolio could take up to a full year and that one may not fully "see" the results of the dividend growth strategy for several years. But for those who are strong of will and are not adverse to doing some work, he provides a great roadmap.

The book is broken into two sections. The first section defines dividend growth investing as investing in dividend paying stocks that have over a long period of time raised their dividend yearly and that one expects to continue this trend. It discusses issues such as inflation, determining an appropriate initial yield and dividend growth rate, and looks at some of the currently available resources and indexes. Ultimately it makes a case for why an individual should construct their own portfolio to achieve their personal goals.

The second section is the real "how-to" and is appropriately titled "Do-It-Yourself." It walks through the portfolio construction process: beginning with methods for identifying candidate stocks, how to analyze their dividend growth history, how to think about reliability of the dividend and risk of a dividend cut, and finally how to manage the overall portfolio. This section is very nuts and bolts. At one point, the author even discusses how to create an Excel equation to compute the CAGR (compound average growth rate) of a company's dividend over time. One note: the author focuses on a payout ratio defined by total dividends paid over free cash flow (as opposed to earnings).

If I have one quibble, it is that the author recommends a portfolio size of roughly 15 - 20 stocks. After some thinking and reading more experienced investors on Seeking Alpha, I think this number might be low. However, should an investor reach that point in developing their personal portfolio, I suspect she will have developed the tools and capacity to make that decision herself.

Overall, I found the ideas in this book to be very actionable. For a long time, I had been interested in personally investing but was always overwhelmed by the amount of information available. Most books that I read pointed out that one should be sure to conduct thorough research into a company without really describing a research process. That this book offered a concrete, realistic research process that made clear areas where judgment and thought are required is what makes me comfortable recommending this book for newer investors. Since reading the book, I feel that I have broadened my analysis' tools and techniques beyond those discussed in the book, but I view that as a natural and healthy progression.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no relationship or contact with the author of this book.