By Bruce Grantier, CFA
Get Rich with Dividends: A Proven System for Earning Double-Digit Returns. 2015. Marc Lichtenfeld.
Get Rich with Dividends: A Proven System for Earning Double-Digit Returns presents valuable insights into achieving excellent long-term investment results. A follow-up to Marc Lichtenfeld's first edition (2012), this retail-investor-oriented book addresses investment in dividend stocks on a broad basis. It provides a rich supply of informative charts and data on dividend stocks and market performance. The book concludes with a discussion of several topics related to the dividend-based strategy, including alternative types of dividends, dividend reinvestment programs (DRIPs), and the comparative attractions of stocks and bonds, foreign equities, and taxes.
Lichtenfeld focuses on "perpetual dividend raisers," companies with long histories of dividend increases. Selecting stocks from this group is the key to successful investing, according to the author. He documents impressive long-run growth in income for holders of these issues. This discussion is followed by an interesting chapter on the comparative merits of stock buybacks and dividend payments, which also examines the arguments surrounding management's enthusiasm for dividend increases.
Lichtenfeld's approach to selecting dividend stocks, the "10-11-12" strategy, is the book's key topic. The strategy's name derives from the author's objective of identifying stocks that will generate 11% yields and 12% annual returns over 10 years. This strategy translates into picking stocks with a minimum of 4% yield and an expected dividend growth rate of 10%. The reviewer's own experience with this math is that assuming a constant price-to-dividend ratio, a 4% constant yield growing at 10% per year generates a total return close to 14% (i.e., the sum of the two percentages). The author gives numerous examples of 10-11-12 stocks, plus extensive data on how his strategy outperforms the market averages.
Although Lichtenfeld cites a fair number of writings on his subject, the book is less complete in its overview of the literature on dividends than a book targeted at professional money managers would be. Surprisingly, there is no mention of Jeremy Siegel's The Future for Investors (2005, Crown Business) or Stocks for the Long Run (1994, McGraw-Hill), both of which address the importance of dividend payments to equity performance. In addition, his discussion of beta makes no reference to Eugene Fama and Kenneth French's work on beta migration or to factors in general. In contrast to more institutionally oriented books, there is no mention of Roger Ibbotson, Rex Sinquefield, and Peng Chen's contribution to style performance through their Stocks, Bonds, Bills, and Inflation reports. Finally, despite references to Warren Buffett throughout, there is no mention of his mentor Benjamin Graham's important contribution to the value investment style, as presented in The Intelligent Investor (1949, Harper & Brothers). Get Rich with Dividends does not tell financial advisers everything they need to know on the topic, but it could be a suitable educational book for many of their clients.
Throughout the book, the author upholds the superiority of the dividend strategy over other approaches to investing. He contrasts it with strategies based on value, growth, technical analysis, and momentum, among other methodologies. Although dividends and their growth can be major contributors to long-term total returns, Lichtenfeld's reservations about the merits of other investment styles, particularly value investing, seem hard to justify. Consider, for example, value-oriented investor par excellence Warren Buffett, mentioned several times by the author. Buffett's Berkshire Hathaway conglomerate has now outperformed the S&P 500 Index by 9.5% per year over a span of 50 years. Prem Watsa's Fairfax Financial Holdings, a sort of Canadian Berkshire Hathaway with a value orientation, recently released an annual report that shows that its stock has returned an index-crushing 19.8% per year over the past 30 years. Not everyone can be a good value investor, and picking dividends in the manner advocated by Lichtenfeld may be easier for the average retail investor. More sophisticated individuals, however, need not rule out alternatives to dividend-driven investing.
All in all, Get Rich with Dividends is a worthwhile contribution to the retail literature on investing in dividend-growth stocks. It offers a credible investment strategy along with a wealth of supporting data and background information.
Disclaimer: Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.