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Dividends Still Don’t Lie – Book review

It is important to keep educate yourself. Stephen Covey calls it Sharpen the saw.

To do this, I follow seminars and/or webinars, read books and blog posts from fellow DGI’s. This to gain new insights and of course learn something new. And because reading is FUN!

I read a lot of books, all kind of books. From biographies, management books to of course financial books. I really enjoy reading. This joy I hope to give to my kids! Reading books opens up a whole new life and you enrich yourself with new knowledge. What a great gift!

In my 2016 goals I wrote that I would read at least one book every quarter. And I will share my new knowledge with you, my readers. I will do this to keep the snowball of knowledge rolling.

Here is the fifth book review for Polliesdividend.

Dividend still don't lie

Dividends Still Don’t Lie (2015) – by Kelley Wright

Almost 20 years after the release of the original classic Dividend don’t Lie by Geraldine Weiss, Kelley Wright updates this book. I read on the Internet that: “If non-fiction books had sequels, this would be one of them”.

The strategy described in this book is a mix of fundamental and technical analysis. If I have to explain it to a 10-year old, I would say: you buy a stock when its dividend yield reaches historically high levels and you sell it when its dividend yield reaches historically low levels. But that is not all, for the complete strategy and for the best results; you invest only in the highest quality companies. In the writers opinion this strategy has blended the best of the fundamental and technical analysis approaches into a superior system.

But how can you identify these so-called high quality stocks? Wright only selects stocks rated A- to A+ by Standard and Poor’s and companies that have paid dividends for 25 years or more. And which are widely followed, as well as other criteria. This method selects out only the top two percent of stocks for consideration. After this selection he uses it dividend yield filter and then only a few possible buys/sells are left over.

This strategy can be used on stocks and on indexes. In the book you can read that it worked well and fit the market as a whole till approx. 1995. After 1995,the author acknowledges that his strategy has not really fit. Okay, this can be a weakness of this strategy. However the author tries to tell us that a “perfect storm” of conditions created a situation that was incompatible with the strategy. This gave me the feeling that the strategy is absolute nowadays. But I know from my own experience, that part of this strategy is still useful. And his newspaper is still read by a lot of subscribers. And on the Internet however I found that Investment Quality Trends, his newsletter, has outperformed the market on several years.

So far a good book, and I gave me some new ideas. And that’s why I read books!!!

My thoughts

After I read the book, I got a feeling I missed something. At first I didn’t know what. But after a good night sleep, I knew what I was missing. Wright (the author) does not present a detailed analysis of his strategy in practice to show its real success. He only gives numerous multipage tables that are not worth reading in my humble opinion. This because, in my opinion, doesn’t add much value. And furthermore he advertised his paid-newsletter too much for my taste.

What furthermore hit me as a DGI was that nothing is said about dividend reinvestment. Therefore I think that this strategy does not really take advantage of the compounding power of long-term dividend growth. Dividend growth in this strategy is used primarily as a screening criterion for stock selection, not as a means for producing a rising income stream.

Quotes

Some nice quotes from the book:

  • When you focus on quality and value, there is a higher probability that gains will follow
  • The gain is made on the buy
  • Don’t fight the Fed
Take away

Okay, what do I take away from this book after I digested it?

  • Instead of screening companies using S&P –rating I will use the Morningstar rating. And then only the 4 and 5 star companies.
  • I will do some data mining to determine the historical dividend yield (high and low) for some companies and do some back testing with them.
  • Blue chip stocks still outperforms most investment methods on a risk-adjusted basis.
  • I will focus even more on the blue chip stocks.
  • A stock is likely to increase its dividend when the payout ratio is 30% or less.

I found the book easy and nice to read. But I have some marginalia with this book. After reading this book I got some new investing ideas. So reading this book was time well spend.

Pollie-rating

The Pollie-rating for this book is:

Pollie-rating

 

Have you read this book? What do you think of the lessons from this book?

Cheers,

Pollie

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