From the Bookshelf
Investing in dividend stocks that will generate 11% yields and 12% average annual returns in 10 years is the strategy touted by Marc Lichtenfeld. In his book “Get Rich with Dividends: A Proven System for Earning Double-Digit Returns” (John Wiley & Sons, 2012), the author says it’s possible to achieve this performance by buying and holding dividend-paying stocks.
The claims seem aggressive, but the numbers are based on reasonable assumptions. Lichtenfeld uses the 50-year average stock market return of 7.48% to project market returns over the next 10 years. He also advises readers to reinvest their dividends, thereby acquiring more shares and even larger dividend payments. Over time, the combination of reinvested dividends and compounding lead to portfolio growth and higher yields.
Lichtenfeld’s book is good overall, though we found his dividend selection criteria to be overly restrictive. The author suggests looking for long-term dividend growth of 10% or more, a payout ratio no higher than 75% and a yield of 4.7%. A search on Stock Investor Pro based on these criteria identified only 36 stocks.
Co-authors Martin Pring, Joe Turner and Tom Kopas argue that the United States is in the midst of a secular bear market in “Investing in the Second Lost Decade” (McGraw-Hill, 2012). The authors say the current secular bear market started with the collapse of the tech bubble and is being extended by the high level of federal debt. They further argue that we are in a bull market for commodities, which is also bearish for stock prices.
The book’s value isn’t in the authors’ market analysis, however, but rather in their approach to identifying business cycles. Much of the text defines the difference between a business cycle, which often lasts four to five years, and a secular market trend, which often lasts 20 years. Even if you don’t agree with the current market assessment made in the book, it is interesting and informative reading.
Followers of Pring expecting detailed technical analysis will be disappointed. This book focuses on macro themes. Even in the appendix, the authors discuss broad allocation strategies, rather than tying their market synopsis back to charts.