The Little Book of Big Dividends by Charles B. Carlson Summary

The Little Book of Big Dividends outlines a strategy for generating reliable dividend income through Carlson’s BSD (Big, Safe Dividends) formula. It emphasizes selecting stocks with stable payouts using metrics like payout ratios and his proprietary Quadrix scoring system, while advocating dividend reinvestment plans (DRIPs) to compound returns.

This book suits income-focused investors seeking low-risk dividend strategies, beginners interested in DRIPs, and those prioritizing long-term wealth building through compounding. It’s particularly valuable for readers wary of market volatility.

Yes—Carlson’s BSD formula reportedly outperformed the S&P 1500 by 6% annually from 1994–2008 with lower risk. The actionable advice on avoiding dividend cuts and leveraging DRIPs, paired with real-world examples, makes it a practical guide for dividend investors.

The BSD formula evaluates dividend safety using two criteria: payout ratio (dividends/earnings) and Quadrix scores (ranking stocks on 100+ variables across six categories like momentum and value). The advanced BSD formula adds metrics like dividend-growth consistency and cash-flow stability.

Quadrix ranks 4,000+ stocks across six weighted categories:

• momentum (price trends)
• quality (profitability)
• value (valuation)
• financial strength
• earnings estimates
• relative performance

Stocks with high Quadrix scores are considered stronger dividend candidates.

DRIPs allow investors to buy shares directly from companies, often with low fees and fractional shares. Reinvesting dividends accelerates compounding, and some plans offer discounted shares, enhancing long-term returns.

Key factors include a sub-65% payout ratio, consistent dividend growth, strong cash flow, and low debt. Carlson’s research shows these metrics helped avoid dividend cuts during the 2008 crisis.

From 1994–2008, the advanced BSD formula returned 6+ percentage points annually over the S&P 1500, with lower volatility. In 2008, only 2 of its recommended stocks cut dividends.

Avoid chasing high yields (often a red flag for cuts), ignoring payout ratios, and neglecting diversification. Carlson also warns against cashing dividends instead of reinvesting them.

Unlike Buying Stocks Without a Broker (focused on DRIP mechanics), this book emphasizes dividend strategy and risk management. It expands on his earlier themes with updated data and the BSD framework.

With market volatility and rising interest rates, Carlson’s focus on dividend stability and DRIPs remains timely. The BSD formula’s emphasis on financial strength helps navigate economic uncertainty.

Some argue the Quadrix system may overfit historical data, and the BSD formula’s reliance on specific ratios could miss sector-specific nuances (e.g., REITs or utilities). However, Carlson provides flexibility for adjustments.