Booked: Get Rich With Dividends


I read another book! Yay! Well…this was awhile ago, but figured I’d give it a review as I particularly liked the concept. (And make it look like I’m keeping up with my goal of reading more).

What am I reviewing? Get Rich With Dividends by Marc Lichtenfeld. A colleague and friend of mine recommended it and I happily indulged. He lent me his copy and I dug in.

A bit on the author, Marc Lichtenfeld:

  • Marc is a former Wall Street analyst with experience in equities. He is also a former business journalist who has done numerous investment conferences globally.
  • Currently, Marc appears to kick it as the Oxford Club’s Chief Income Strategist and Founder and Senior Editor of The Oxford Income Letter. (Pretty prestigious Marc)
  • He has appeared on CNBC, Fox Business and Bloomberg Radio. His work has been featured on, Forbes and U.S. News and World Report and others.
  • Get Rich with Dividends was named 2016 Book of the Year by the Institute for Financial Literacy.

In Get Rich with Dividends, Marc discusses how to grow your retirement stash with dividend paying stocks through a passive approach. He discusses the 10-11-12 system and his criteria for selecting dividend stocks.

10-11-12 System

This is Marc’s proprietary system. It is named so, as he discusses criteria to select stocks that, in 10 years will give 11% yield on cost, and average annual returns of 12%.

So how does she work? Some rules / principles of the system include:

  • As the name suggests, your investment horizon should be 10 years or more.
    • Primary reason being that you need some time to allow those dividends to compound.
  • Payout ratio, which is dividends divided by net income, should be 75% or less (I also like looking at dividends as a proportion of free cash flow and cash flow from operations).
    • 75% is acceptable for certain investments like a REIT, as their main focus is distributing cash to investors for sale of buildings/land, rental income, etc.
    • For companies found in the S&P 500 though, I’d say acceptable payouts are 50% or less.
    • The payout ratio allows one to see what proportion of earnings a company is paying out as a dividend. The lower the payout ratio, the more breathing room they have to increase those dividends in the future.
  • Dividend yield should be 4%+.
    • It can be challenging to find companies with such high payouts that are of quality. When I’m sifting through companies, I may drop this hurdle to 3%.
    • REITs should definitely be over 4% yield though as, again, REITs distribute the majority of their cash flow to investors.
  • The companies should have a good outlook on revenue, net income and cash flow.
  • Look at the dividend growth rate and see if it is meaningful, such as growth rates of 10%.
    • Also look at dividend growth acceleration, which is the rate at which dividend growth is increasing. There could be companies with current growth of only 5% but with a lot of momentum in the acceleration of that growth rate.
  • At least once a year look to see if the payout ratio has increased, or there is a decline in cashflow, earnings or sales or there is a change in dividend policy.
  • One nice resource for this type of information is the DRiP Resource Center where you can see Dividend Champions (25+ straight years of dividend increases), Contenders (10-25 years) and Challengers (5-9 years).

Of the S&P 500 gains all time, Dividends make up 42% of historical gains! It is unmistakable that dividends are extremely important in an investment strategy.

I really enjoyed this book and found the insights were rational and could be applied generally. However all the examples provided are historical and included bias. For any stock where this strategy worked, there were likely several more losers that this strategy would have failed (this is an argument for index funds which, of course, pool stocks so you get winners and losers but on average get some pretty nice gains).

That being said, the number of companies to invest in is overwhelming. I think these rules can get you a smaller pool of quality companies to look at more extensively.

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