investment. It’s a widely recognized fact that 80 % of new businesses fail in the first five years.
What really makes money for investors over time – and without the hair-raising volatility of hypergrowth stocks – is steady businesses paying regular dividends.
For example, over the past decade, with dividends reinvested, oil producer Chevron Corp has returned 200 %. Altria Group, the U.S. tobacco giant, has returned more than 300 %. Even musty old Con Edison, originally founded asNew York Gas Light Company – a utility that was born 23 years before Thomas Edison – has returned 130 % over the period.
In this excellent new book, my friend, colleague, and fellow analyst Marc Lichtenfeld shows you how and why to invest in great dividend stocks. And let me make two things clear at the outset. Number one, you could not find a more worthy, knowledgeable, or trustworthy guide to the investment landscape. And, second, this investment approach really works.
How can I be sure? Marc runs the Oxford Club’s Perpetual Income Portfolio, a portfolio based solely on growth and income investments. He has done a superb job. In fact, when I looked at the returns recently, I had to ask him, “Holy crap, Marc. How do you do it?”
Fortunately, Marc shows you how you can earn returns like this yourself. He has made me a believer. At investment seminars today, I tell attendees, if you are looking for growth, invest in dividend stocks. If you are looking for income, invest in dividend stocks. If you are looking for safety, invest in dividend stocks.
Why? Earnings may be suspicious due to creative accounting. Revenues can be booked in one year or several years. Capital assets can be sold and the value listed as ordinary income. But cash paid into your account is a sure thing, a litmus test of a company’s true earnings. It’s tangible evidence of a firm’s profitability.
Regular payouts impose fiscal discipline on a company. And history reveals that dividend-paying stocks are both less risky and more profitable than most stocks.
Dr. Jeremy Siegel, a professor of finance at the Wharton School of the University of Pennsylvania, has done a thorough historical investigation of the performance of various asset classes over the last 200 years, including all types of stocks, bonds, cash, and preciousmetals. His conclusion? High-dividend payers have outperformed the market by a wide margin over the long haul.
There is an awful lot of fear and anxiety about the economy andthe stock market today. Investors are understandably confused and uncertain about what to do with their money.
Marc Lichtenfeld has your solution. He demonstrates that even during market declines, dividend-paying stocks hold up better than non-dividend-paying stocks and often fight the broad trend and rise in value. The reason is obvious: These tend to be mature, profitable companies with stable outlooks, plenty of cash, and long-term staying power.
Bear in mind that U.S. companies are sitting on a record amount of cash right now, more than $2 trillion. Companies are not hiring, and they’re not boosting spending. So a lot of this cash is rightfully going back to shareholders. The Dow currently yields more than bonds. And dividend growth among U.S. companies has averaged 10 % per year over the last two years, more than double the long-term dividend growth rate.
The current outlook is especially promising. Over the last 50 years, for instance, the highest 20 % yielding stocks in the Standard & Poor’s 500 returned 14.2 % annually. That’s good enough to double your money every five years – or quadruple it in ten. And if you were even more selective, say investing only in the ten highestyielding stocks of the 100 largest companies in the S&P 500, your annual return would have been even better, 15.7 %.
I should add the standard caveat here about past performance and point out that there are risks with dividend stocks too. As Marc points out, an investor would be foolish to plunk down money for a stock just because the dividend is large. You have to be selective. The market is full of “dividend traps,” troubled companies that pay hefty dividends to keep investors from bailing out.
In the pages that follow, you’ll learn how to avoid those and zero in on potential winners.Marc shows you how to look at cash flow and payout ratios and whether the dividend is sustainable.
Does this require a bit of legwork? Yes, but the payoff is large.
It astonishes me that investors are willing to lend money to the U.S. Treasury for the next ten years at less than 2 %. What a terrible bet, one that virtually guarantees a negative, real (after inflation) return over the next decade.
A far better bet is a diversified portfolio of dividend-paying stocks. Over the eight decades through 2010, dividends contributed 44 % of the U.S. stock market’s return, according to Fidelity Investments. Sometimes it was much more. During the 1970s, for example, dividends generated 71 % of returns.
Marc makes a strong case that dividend stocks today represent a historic opportunity. Not only are U.S. companies flush with cash, but payouts are less than one third of profits, a historic low.
Dividends alone won’t generate a mouth-watering return. But they will rise over time – and surprising things happen when you reinvest them. Picture a snowball rolling down hill.
Albert Einstein understood this. As he observed, money compounding “is the most powerful force in the universe.” And the best way to compound your money? Great companies that pay steady, rising dividends.
This book is your key because Marc Lichtenfeld does a great job of showing you just where to find them.
Preface
It was a eureka moment.
I was working on a dividend spreadsheet, changing the variables, when the size of the numbers I saw surprised me. I realized that if my kids' money was invested according to the formula I was working with, they should never have any financial problems in adulthood, no matter what job or career they choose.
I also recognized that using the same formula, my wife and I should never have to worry about income in retirement.
And last, I understood that if my parents invested according to the formula, they, too, should have no worries about income in old age.
That's when I knew I had to write this book.
Get Rich with Dividends is for the average investor – the investor who is just getting started and the investor who is playing catch-up, the investor who has been burned by the booms and busts of the recent past and the investor who trusted the wrong advisor and ended up paying thousands of dollars for worthless advice.
This book is for all investors who are serious about creating real wealth for themselves and their families, investors who are willing to learn a simple system for making their money work as hard as they do (or did). It's easy to learn and implement and takes very little free time. Importantly, it's not a theory. It's been proved to work over decades of bull and bear markets.
And it's designed for investors who have other things they'd rather do than spend hours on their portfolios. Implement the 10–11–12 System and let stocks and time work their magic. All that's required is the occasional check-in from you to make sure the companies in your portfolio are still behaving the way you expect them to. If they are (and you'll learn how to pick companies that are most likely to meet your expectations), no further action is necessary.
As the editor of the Oxford Club's Oxford Income Letter, I receive e-mails every month from investors who are yearning for higher yield. In this low-rate environment, current yields aren't cutting it for many retirees. I was inspired to
