Matt Alden, and fellow dividend blogger at the Dividend Monk has recently published a great stock analysis guide. I’ve had the opportunity to read the entire guide and apply some of its concepts. I think this is a great toolkit for any serious DIY investor willing to use the Discounted Cash Flow Analysis (DCF) or Dividend Discount Model (DDM) to determine the true value of a company.
The guide starts with the following six core topics:
- Live Simply, Build Wealth
- Utilize the Raw Power of Compounding
- Explore a Corporation
- Learn the Investing Basics
- Discover Dividend Growth Investing
- Build and Manage a Growing Portfolio
Then, the guide includes six more advanced topics:
- In-Depth Analysis of Stock/Bond Asset Allocation
- The Two Problems with Index Investing
- Comprehensive Guide to Stocks Analysis Based on the Pareto Principle
- Special Investments: MLPs and REITs
- How to Use the Valuation Spreadsheets
- The Pareto Principle Analysis Workbook
Matt begins with the basics of dividend investing, how to create a stream of passive income and then moves on to actually determining the true value of a stock.
Matt does an excellent job of explaining how to analyze a company based on the Pareto Principle. Matt explains “The theory behind the Discounted Cash Flow Analysis (DCF) is that the value of a business is equal to the sum value of all future free cash flows.” In addition the Dividend Discount Model (DDM) is also very well explained. The Dividend Toolkit comes with a streamlined stock valuation spreadsheet that you can use to apply the DCF and DDM to arrive at a fair value purchase price.
This guide is full of great information, helping you along the way to become a better investor. Here are some of my favorites:
“The key difference between financial dependence and financial independence is whether you make money from your labor, or whether you make money from your money.”
“The goal of the path towards financial freedom is to achieve a state where investment income exceeds your expenses with a comfortable margin, and is set to grow at a faster pace than inflation.”
“Dividend Growth Investing is not just about investing in stocks with a high dividend; it’s also about investing in companies that grow their dividends year after year, like clockwork.”
“In most market crashes, people perceive the problem as the crash itself, when in reality, the problem was the overvaluation of the market that usually existed prior to the crash.”
“Dividend stocks are generally less volatile than companies that do not pay a dividend. This is especially true if you invest in large-cap dividend payers. Dividend-paying companies are an excellent option if you want to take control of your own finances with individual stock selections without having to check on each of your companies every day.”
The Dividend Toolkit is well researched, well presented, and provides many examples. At 200 pages long this toolkit is an excellent resource for any serious DIY investor looking to expand their knowledge.
More information on The Dividend Toolkit is available here.
To learn more about Matt and to read his blog, visit the Dividend Monk.
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