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My friend, Dave Van Knapp of SensibleStocks.com, publishes an annual overview of the dividend-paying stock scene for $40. This year's edition, the seventh, came out last month and Dave was kind enough to send me a copy of Top 40 Dividend Growth Stocks for 2014.

Right upfront, these are the new features for 2014:

  • A new selection of 40 Top Dividend Growth Stocks, including complete analyses and valuations
  • Performance table to show how 2013′s Top 40 did
  • New and expanded coverage of:
    • A variety of terms and definitions in the glossary
    • Risk and how to manage it
    • How to get started
    • Dividend growth stocks in retirement and retirement planning
    • Dave's own demonstration Dividend Growth Portfolio
  • Text and investment guide now covers over 180 pages
  • At request of readers, the book uses a new, lower minimum yield requirement (2.0%) for those who look forward to decades of compounding.

In looking ahead, Dave writes that he feels "good about the general dividend outlook for 2014. I think that most companies have regained their footing since the Great Recession. It took some of them a few years to get there, but I think that most of them are there now."

Here's the table of contents:

In the introduction, Dave writes, "The principal goal of dividend growth investing is simple: To build a sufficient, reliable, steady stream of rising income." There are three phases in his process, each explained in a separate chapter:

Phase one is to identify the best dividend growth companies. By Dave's way of thinking, they:

  • Are financially solid
  • Have great business models with sustainable competitive advantages
  • Offer a good initial yield at time of purchase
  • Consistently raise their dividends
  • Are relatively low in risk by dividend and stock price

On the last point, he clarifies that stock market risk can never be fully eliminated. Within the risk of the market, however, we want relatively stable companies, not firecrackers.

Phase two is valuation of companies so that you can purchase them at favorable prices. "You literally shop for stocks that are on sale," he writes.

Phase three is portfolio management. It includes everything not covered in the first two phases: How to make timely decisions to buy, sell, hold, or replace stocks; maximize dividend streams; exercise sound risk management; manage dividend cuts; and avoid outright loss of capital wherever possible.

After a terrific primer on the benefits of dividend income and buying companies that produce it, Dave outlines the characteristics of the best dividend stocks and then introduces the 2014 Top 40 with "sufficient variety" to "create a well-rounded portfolio" as shown in the following breakdown by sector, with the numbers at the front of each row taken from the Global Industry Classification Standard (GICS):

Each of the 2014 Top 40 gets a one-page Easy-Rate Scoresheet for simple comparison, and those follow various lists of the 40 sorted in different ways. Given the many ways of viewing the winners, you'll have no trouble choosing which are right for your portfolio. The highest dividend yield is 7.6 pct and the lowest is 2.0 pct.

Dave has preloaded all 40 of the stocks into F.A.S.T. Graphs and linked the page directly from within the eBook. Readers just click the link, then select the stock they want to see from a dropdown on the resulting page in their browser. The up-to-date graph for the selected stock will load. This is a convenient feature for readers that will remain timely all year.

Here are seven observations about this year's 40 from Dave. Note that DGR stands for dividend growth rate:

Dave closes with thoughts on how to use dividend-growth stocks in retirement planning, relying on a helpful cistern metaphor. He suggests picturing that your retirement assets "reside in a cistern, with pipes bringing assets in and taking them out." He says your retirement cistern has two goals:

  1. You must be able to draw enough from the cistern to fund your retirement adequately.
  2. The cistern must never go empty. In fact, it must never get even close enough to empty that you lose sleep or worry about the possibility.

With the help of this book, it won't. I wrote four years ago that this is the best dividend stock book I know. It still is, and it keeps getting better.

Source: Dave Van Knapp's Top 40 Dividend Growth Stocks For 2014