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🎯 The Book in 3 Sentences
💡 Key Takeaways
- Dividend growth is key for long-term wealth and stability.
- Reinvest dividends to benefit from compounding growth.
- Focus on companies with consistent dividend growth.
- High-quality dividend portfolios can outperform the market.
✏ Top Quotes
Focus on dividend growth more than dividend yield.
Dividend growth is a reliable measure of quality.
📝 Summary + Notes
Part I: Dividends & Retirement
- When in retirement you have to sell yearly from your nest egg a number equal to your expenses.
- You are depending on the market conditions and inflation.
- Asset allocation (i.e. 60% stocks, 40% bonds) might not be a sustainable way to build your portfolio anymore.
- Dividends:
- Grow our wealth reliably over long periods of time (15+years) to pay your bills.
- Minimise the volatility of our portfolio so we can sleep well at night.
- That income grows at least as fast as our expenses.
- Are easy-to-understand and follow.
Part II: The Power of Dividends
- Companies can use their profits to invest in themselves for growth and/or pay their shareholders dividends.
- Dividend growth is the key to success.
- Dividends get paid regardless of what happens to stock prices.
- A company pays dividends as an absolute value and not a percentage. For example, Coca-cola pays $0.33 per share.
- A growing dividend puts upward pressure on a stock’s price. Over a long enough period, it’s impossible for the price not to grow with the dividend.
- Re-invest your dividends.
- Why Dividends?
- Outperform the S&P 500. Since 1972, companies that have grown their dividends outperform the average stock by more than 3x.
- Less price volatility. In 2008, the S&P 500 fell by 39%. The Dividend Achievers (10+ years of dividend growth) decreased by only 25%.
- Higher realised future returns. A 100% dividend stock portfolio that underperforms the S&P 500 index by 1% per year is still likely to beat an 80/20 stock/bond portfolio of index funds.
- Higher current income. The S&P 500 index produces a dividend yield of approximately 1.9% at the time of this writing. A high-quality dividend portfolio would generate close to 3% or more.
Part III: Applying the Dividend Strategy
- Just 18 companies have been able to grow their dividends for 50 consecutive years.
- American States Water (AWR) is a water and electricity utility in California.
- Cincinnati Financial (CINF) provides insurance to companies and individuals.
- Colgate-Palmolive (CL) makes Colgate toothpaste, Speed Stick deodorant, Palmolive dish soap, and even cat food.
- Dover Corporation (DOV) is a conglomerate industrial manufacturer.
- Emerson Electric (EMR) makes process automation technologies, climate technologies, and commercial/residential tools.
- Farmers and Merchants Bancorp (FMCB) is a community bank chain located exclusively in California.
- Genuine Parts (GPC) makes automotive parts and owns retail auto repair shops. You might recognize them as NAPA Auto Care.
- Hormel Foods (HRL) owns brands Wholly Guacamole, Muscle Milk, Skippy peanut butter, Hormel, and everyone’s favorite unrecognizable meat product (Spam).
- Johnson & Johnson (JNJ) owns your medicine cabinet. Seriously. They include Motrin, Tylenol, Benadryl, Zyrtec, Band-Aid, Listerine, Aveeno, Neutrogena, and Johnson’s. They also make medical devices and have a pharmaceutical division.
- Coca-Cola (KO) makes sugar water and a whole lot more. You might recognize their Dasani and Vitamin Water brands in addition to Minute Maid, Fuze, Gold Peak, Schweppes, Simply Orange, Honest T, Powerade, and more.
- Lancaster Colony (LNC) sells regional specialty food products such as bread.
- Lowe’s (LOW) is a US home improvement retail store.
- 3M (MMM) makes everything from paint supplies to Post-It Notes.
- Nordson (NDSN) is another industrial manufacturer.
- Northwest Natural Gas (NWN) is a natural gas utility in Oregon and Washington.
- Parker-Hannifan (PH) is a diversified industrial goods manufacturer.
- Procter & Gamble (PG) owns everything else in your house that you don’t buy from Johnson & Johnson. Their brands include Crest, Tide, Pampers, Head & Shoulders, Gillette, and many others.
- Vectren (VVC) is a gas and electric utility in Indiana and Ohio. I pay my utility bill to them. If you own their stock, you’re welcome.
- Authors favourite is the Vanguard High Dividend Yield ETF (VYM).
- Before you buy a stock, be sure to check the payout ratio. That is simply the amount paid in dividends divided by the earnings generated over the past year.
- An advisor is not worth the price you’re going to pay.