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The purpose of the stock market is to enable companies to raise the capital they need to start or grow their businesses. Instead of borrowing money from a bank and paying interest on it, a company can sell shares of itself to investors. Over the years, the stock market has gone from being a respectable venue for investors to purchase partial ownership in companies to something more akin to a casino. Seduced by reports of individuals earning millions nearly overnight by investing in high-growth stocks, speculative investors poured money into many companies that offered nothing more than a promise of sales and profits, further inflating share prices. When the needle point of reality finally popped the bubble, the poor unfortunates who failed to cash out their chips early enough were blown away like dust.

Fortunately, the deflated bubble (along with some dividend-friendly tax legislation) brought many investors down to earth and back to the basics – investing in companies with a proven track record of earning profits and paying dividends. As they return to the fold, investors are beginning to realize what their parents, grandparents, and great-grandparents already knew – dividend investing offers a host of benefits that provide a safer and often more profitable way to invest in the stock market.

Dividend investing is nothing new. In fact, since 1602, when the Dutch East India Company became the first corporation to issue stock, dividends have been the primary way for investors to receive profits from their investments without dissolving the company or selling the investment. However, following a dividend-investment strategy is new to many modern investors who’ve been focused solely on growth investing. If you count yourself among this crowd or are just starting out and plan on investing in dividend stocks, you’ve come to the right place. Investing in Dividends For Dummies contains all you need to know to develop your strategy, find and evaluate potentially good dividend stocks, manage your portfolio, and avoid the most common and critical mistakes.

About This Book

I’d love to be able to hand you a list of stocks and send you off with instructions to buy each one, but investing doesn’t work that way. Every investor is different. You have a unique personality, specific goals, and a tolerance for risk that’s different from your neighbors next door or across the street. Every company is different, too, operating in a specific industry, offering unique products and services, and being managed to varying levels of success. As an investor, your goal is to pair yourself up with investment opportunities that are a suitable match. That’s what this book is all about.

In Investing in Dividends For Dummies, I present the idea of dividend investing and lead you through a process of self-examination to determine the type of investor you are, identify your goals, and develop an overall strategy that can move you most efficiently (and safely) from point A to point B. I show you how to find promising candidates and how to then evaluate them by using time-tested criteria so that you choose the best stocks to meet your needs. I mention some historically well-performing stocks you may want to check out, show you various ways to buy and sell shares, and offer guidance on managing your portfolio after you’ve purchased some shares.

The best part about this reference book is that you decide where to start and what to read. I’ve written every chapter to stand on its own, so you can start at the beginning of the book or pick any chapter from the table of contents and dig in.

As you read, keep one important point in mind: Past performance of a stock is no guarantee of future returns. I know, I know – you’ve heard that one before. But it’s worth repeating. What it boils down to is this: If I mention a company in this book that I think is a potentially good dividend stock, don’t assume I’m telling you to buy it. You may want to look into it, but I’m not necessarily recommending it. After all, by the time you read this book, that stallion of a stock may be a bust. Whatever you invest your money in or spend your money on is entirely your choice. I provide some guidance in picking stocks that may be likely to outperform other stocks, but I provide no specific recommendations. Take all the credit for your good investment decisions, but take all the blame for bad ones, too.

Foolish Assumptions

While writing this book, I made a few foolish assumptions, mainly about you and how much you know about investing:

✓ You have a general understanding of investing and your investment options, including CDs (certificates of deposit), money market funds, stocks, bonds, mutual funds, real estate, and so on.

✓ You grasp the basics of stock market investing.

✓ You realize that investing always carries some risk, that some risks are greater than others, and that not investing can also be risky.

✓ You have some money (capital) to invest. It doesn’t need to be stuffed in your pocket or sitting in a bank account. It can be money you already have invested, perhaps sitting in an IRA or 401(k).

✓ You want a safer way to invest your hard-earned dollars, so you’re interested in introducing or adding more dividend stocks to your portfolio.

Icons Used in This Book

Throughout this book, you can spot icons in the margins that call your attention to different types of information. Here are the icons I use and a brief description of each:

Everything in this book is important, but some of it’s more important. When you see this icon, read the text next to it not once but two or three times to brand it on your brain cells.

Tips provide insider insight from behind the scenes. When you’re looking for a better, faster, safer, and/or cheaper way to do something, check out these tips.

This icon appears when you need to be extra vigilant or seek professional help before moving forward.

Investing has its fair share of highly specialized language and concepts that typically fly above the heads of mere mortals. Whenever I explain something highly technical, I flag it with this icon so that you know what’s coming.

Beyond the Book

In addition to all the material you can find in the book you’re reading right now, this product also comes with some access-anywhere goodies on the web. Check out the Cheat Sheet at www.dummies.com/cheatsheet/investingindividends for helpful insights and details about whether you should hire a financial advisor and considerations for building a nest egg. You can also find interesting companion articles at www.dummies.com/extras/investingindividends.

Where to Go From Here

Investing in Dividend For Dummies is designed to appeal to a universal audience of intermediate and experienced investors at all stages of developing and managing their investment portfolios.

For the new dividend stock investor, I recommend you read the book from cover to cover starting with Chapter 1. More experienced divided stock investors who already know themselves and their goals and have an effective strategy in place to reach those goals may want to skip to Chapter 7, where I show you how to track down income-generating, dividend paying stocks, or Chapter 8, where I show you how to evaluate them.

Regardless of your experience, however, feel free to skip around and read whatever catches your interest. Each and every tidbit of knowledge and insight you acquire can only serve to make you a more astute investor.