This paper proposes an effective VAR planning based on reactive power margin for the enhancement of dynamic voltage stability in distribution networks with distributed wind generation. The analysis is carried over a distribution test system representative of the Kumamoto area in Japan. The detailed mathematical modeling of the system is also presented. Firstly, this paper provides simulation results showing the effects of composite load on voltage dynamics in the distribution network through an accurate time-domain analysis. Then, a cost-effective combination of shunt capacitor bank and distribution static synchronous compensator (D-STATCOM) is selected to ensure fast voltage recovery after a sudden disturbance. The analysis shows that the proposed approach can reduce the size of compensating devices, which in turn, reduces the cost. It also reduces power loss of the system.