If non-fiction books had sequels, this would be one of them. Over almost 20 years after the release of the original classic “Dividends Don’t Lie” by Geraldine Weiss, author Kelley Wright breathes life into the subject once again with his version “Dividends Still Don’t Lie: The Truth About Investing in Blue Chip Stocks and Winning in the Stock Market“.
The main theme of the book is that a stock’s dividend yield is the best indicator of its value and ultimately the right time to buy. Building upon “The Dividend-Yield Theory” presented in the first book, Kelley reviews and updates this theory using new and recent data. The book then goes on to explain how this theory can be applied by individual investors.
The Dividend-Yield Theory:
The Dividend-Yield Theory is very interesting. Rather than look at 100 different metrics, the theory follows one simple premise.
If you take any reputable, blue-chip stock and follow its dividend yield, you’ll notice it cycling up and down over time. It’s within these cycles that upper and lower-limit boundary lines can be established. As the stock’s dividend yield cycles up and down, this will reveal if it is either “over-priced” or “under-priced”. As you can probably guess, we want to buy when the stock is under-priced!
Unlike many books on this subject, the text gets pretty graph and chart heavy towards the middle to support this theory. You can see the cycle in both the Dow Index as well as a few individual stocks.
So how can we find out just what these boundaries are? By subscribing to Kelley’s publication of course! His newsletter “Investment Quality Trends” (to which Kelley is the Editor of) does just that – reviews and analyzes stocks for these types of occurrences. And he makes sure to mention this every couple of pages …
Making a Strong Case for Stocks:
Even if you don’t believe this theory, the book is packed with a lot of great reasons why stock investing is one of your best strategies for the long-term.
For example, Chapter 2 (p. 17) proclaims that between 1926 and 2008 that the average annualized returns for the following investment types were:
• S&P 500: 9.60% (or 7.10% after inflation)
• 20-Year Government Bonds: 5.70% (or 2.20% after inflation)
• 30-Day Treasury Bills 3.70% (or 0.50% after inflation)
Obviously there are going to be periods where bonds do better than stocks. So Kelley tests that theory by comparing the “rolling averages” against each other over certain lengths of time (20 years, 10 years, etc). What did he find?
• 20-Year Holding Period: Stocks outperformed fixed income 98.43% of the time (p. 22)
• 10-Year Holding Period: Stocks outperformed fixed income 85% of the time (p. 25).
• 5-Year Holding Period: Stocks outperformed fixed income 73.41% of the time (p. 25).
Focusing on Blue Chips:
In the value-investing mentality of this book, it really focuses a lot on blue chip companies that issue dividends. Not only is there a lot of argument for blue-chips and the Dow Jones, but it also gives some good rule-of-thumbs to follow:
• Stay away from dividends that have a payout ratio (dividend divided by the 12-month earnings) that are higher than 50% (or 75% for utility companies) (p. 178).
• A stock is likely to increase its dividend when the payout ratio is 30% or less (p. 178).
Not Necessarily for Beginners:
As I’ve already mentioned, this book is very chart and graph heavy. The text basically already assumes you know something about stocks and investing. It does not get into what a dividend stock is, using them for retirement, DRIP’s, or any other 101 lesson such as that. If you’re just starting out, you may want to consider reading “The Little Book of Big Dividends: A Safe Formula for Guaranteed Returns” by Charles Carlson first.
Photo Credits: Amazon, Dividends Still Don’t Lie