Many books on dividends leave readers with the wrong impression. Some are incomplete – the book guides the reader to the party but the invitation inside is lost. Others make subtle and not so subtle errors – the book takes the reader to the wrong house.
Readers are left uncertain. What is supposed to work does not. What is bad theory masquerades as good. It is not just what investors do not know that causes them trouble. It is what they believe is true but is not that makes things worse.
I wrote Investing in Dividend Growth Stocks to address these uncertainties. It fixes these wrongs. Over the long term, dividend growth stocks have generated considerable income and wealth. Dividend growth portfolios often beat the market. And they do so with less risk.
As strong as these claims are, they are within reach for most investors. In fact, the approach in Investing in Dividend Growth Stocks is simple:
Choose high-quality stable businesses that have reached a certain age. These businesses share two key features: (1) they earn a high return within the business itself and (2) their markets show stable and moderate growth. As a result, the businesses generate more cash than they need each year. The extra cash grows steadily from year to year. The companies pay growing dividends. They buy back shares. For the larger companies, dividends grow 8-12 percent a year. To use loose language, in most environments, this reasonable growth rate plus a reasonable dividend yield results in market-beating returns, returns that exceed the market’s long-term average of 9-10 percent a year.
Proof. The S&P 500® Dividend Aristocrats® are stocks in the S&P 500 that have raised their dividends 25 consecutive years. For the ten years ending 31 August 2016, Dividend Aristocrats returned 10.7 percent a year compared to 7.5 percent a year for the S&P 500. And they did so with somewhat lower risk.
Likewise, the original twenty dividend growth stocks profiled in this book have done exceedingly well. For the ten years ending 31 December 2015, they returned 14.1 percent a year compared to 7.3 percent a year for the S&P 500. And the twenty did so with much less risk. In fact, when adjusted for risk, the twenty went all long-term Booyah: They posted an average annual risk-adjusted return of 17.9 percent a year, almost double that of the market’s 9.1 percent a year.
(In 2016, the twenty returned 16.75 percent (conservatively), well ahead of the market’s 11.82 percent.)
Structure. This book is three books in one: income, criteria, and picks. In it, you will learn everything you ever wanted to know about dividends, share buybacks, dividend reinvestment, and dividend growth. You will understand the criteria for picking great dividend growth stocks. You will see how to properly value them. The book includes twenty dividend growth stocks to consider. We look at these in detail. In the digital edition, material is simplified, substantially expanded, and rearranged. Images for the digital edition are redone in color. The digital edition has roughly 30 percent more content than the print edition. The digital edition includes many end-of-book summaries including a section on why dividend growth stocks perform so well.
Underlying Themes. This book has three key underlying themes: the business, return, stability. Understand these and you will succeed.
Why? I wrote this book to show you how to become a better investor. When you finish, you will have all the tools you need to become a successful investor. Long-term and dividend growth follow almost naturally.
An Opening. Most funds play the short- or intermediate-term performance game. You do not need to play this game. You will do better when you don’t. This gives the intelligent investor an opening. This book shows you the way.