CHAPTER 1
Why Dividend Stocks?

Let me start by making a bold statement: The ideas in this book are among the most important gifts you can give to yourself or your children. On the pages that follow is the recipe for generating 11% yields and 12% average annual returns for your portfolio—significantly more if the stock market cooperates or your particular stocks cooperate.

I'm not trying to brag. I wasn't the one who first came up with the idea of investing in dividend growth stocks. I just repackaged it in a compelling, easy‐to‐read book that you will cherish for a lifetime and want to buy more copies of for all your friends and family. Or at least lend them yours.

How do I know? Because more than 125,000 copies of the first two editions of Get Rich with Dividends have already been sold. (Okay, now I'm trying to brag.) In addition to English, Get Rich with Dividends has been published in Japanese, Thai, and Polish. I can't even walk the streets in Gdańsk.

Enough jokes (for now). What I did was create an easy‐to‐learn system for investing in dividend growth stocks. You'll not only understand why dividend growth investing is one of the most lucrative and uncomplicated ways to invest but also learn the simple steps of how to do it.

If you follow the ideas in this book and teach them to your children, it's very conceivable that many of your concerns about income in the future will be over. And perhaps just as important, if your children learn this strategy at a young age, they may never have financial difficulties. They will have the tools to set themselves up for income and wealth far before they are ready to retire.

I've seen the results firsthand, and so has my family. Eleven years ago, when I was working on the first edition, my then‐10‐year‐old son asked me what I was writing about. I explained the concept and showed him my spreadsheet. He eagerly said, “You mean if I invest some money now, when I get out of college, it should be worth three times as much?” I let him know that there are no guarantees but if history is any guide, then, yes, he should.

A short time later, we set up his account. Between May and June of 2012, we bought $2,572 worth of stock. All were stocks of companies that regularly grew their dividends.

I'm happy to report that the kid is graduating college this year and those stocks are worth $8,969 with dividends reinvested. That's a 248% total return, or a compound annual growth rate (CAGR) of 13.3%, beating the goals of this book by 1.3 percentage points.

During that period, we had civil unrest, the impeachment of a president, Russian interference with a presidential election and the attempted overturning of that election, a pandemic, and plenty of conflict around the world.

Yet stocks did what they almost always do over the long term. They went up.

Keep in mind that I cannot teach you or your kids how to save money. If you would rather buy a new car or take a costly vacation at the expense of putting money away, I can't, and won't, attempt to fix that. This book is for the people who are serious about improving their family's financial lives, already know how to save, and are trying to make that money work as hard as they do.

As far as saving money is concerned, the only advice I'll offer can be found in one of my favorite finance books, The Richest Man in Babylon by George S. Clason. In that book, first published in 1926, Clason writes, “For every ten coins thou placest in thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul.”

Many personal finance gurus proclaim the same advice but with a more modern bent to it, stating, “Pay yourself first.”

Even if you are not able to save 10% of your current income, saving anything is crucial. As you will see, the money you save and invest using the ideas in this book will grow significantly over the years. So if you can save only 8%, 5%, or even 2%, start doing it now. And if you get a raise or an inheritance or win the football pool, do not spend a dime of it until you have put away 10% of your total income.

And it's easier to invest today than it was just 11 years ago when I wrote the first edition. Today, trading at most discount brokers is commission‐free. And you can even buy fractions of shares if you don't have enough to buy a full share of your favorite stock.

Here's a scary statistic. According to a 2020 study by PwC, the average 55‐ to 64‐year‐old's retirement account held just $120,000. That will generate less than $1,000 per month in income over a 15‐year time period.1 The average Social Security retirement benefit is $1,471 monthly.2 That's barely enough to pay the $1,322 average rent for an apartment in the United States.3 That leaves just $149 for food, clothes, utilities, and so on. Clearly, relying on Social Security alone won't be close to enough to live on.

If you are serious about improving your family's financial future—and I know you are because you're investing the time to read this book—start saving today, if you haven't already.

Imagine if you saved 10% of your money and put it into the kinds of dividend stocks discussed in this book. Over time, your wealth should grow to the point that it will have generated significant amounts of income, perhaps even replacing the need to work.

This is the last point I will make about saving. You didn't spend your money on this book (or drive all the way to the library) just to have me beat you up about saving. Instead, I will assume you really are serious about securing your future and want to learn how to take those funds and add a few zeros to the end of the total number in your portfolio.

And if you're already retired and you need income right away, the strategies in this book can help you too. You may not have the ability to compound your wealth, but you can invest in companies that will generate more and more income for you every year. You not only can beat inflation but also can give yourself and even your loved ones an extra cushion.

There are lots of ways to invest your hard‐earned money. But you'll soon see why investing in dividend stocks is a conservative way to generate significant amounts of wealth and income. This isn't theory. It's been proven over decades of market history.

Some people believe that real estate is the only way to riches. Others say the stock market is rigged so that the only people who make money are the professionals—therefore, you should be in the safety of bonds. Still others say gold is the only real money. Some think the same about cryptocurrency. None of these beliefs is true at all.

Within the stock market, there are various strategies that are valid. Value investors insist you should buy stocks when they're cheap and sell when they're expensive. Growth investors believe you should own stocks of companies whose earnings are growing at a rapid clip. Momentum investors suggest throwing valuation out the window and investing in stocks that are moving higher—and getting out when they stop climbing.

Still others trust only stock charts. They couldn't care less what a company's earnings, cash flow, or margins are. As long as it looks good on the chart, it's a buy.

Each of these methodologies works at some point. The effectiveness of value and growth strategies tends to alternate: One is in favor while the other is out until they trade places. For one stretch of time, value stocks will outperform. Then for another few years, growth stocks will be stronger. Eventually, value stocks will be back in fashion, as they are today after a decade of underperforming growth stocks.

That's good news for dividend investors. A great many dividend stocks with strong yields are value stocks. That's why their yields are high—because their stock prices, and their valuations as a result, are low.

Whichever is in vogue at the moment, supporters of each will come up with all kinds of statistics that prove their method is the only way to go.

The same dynamic applies when it comes to fundamentals versus technicals. The technical analysts who read stock charts assert that everything you need to know about a company is reflected in its price and revealed in the charts. Fundamental analysts, who study a company's financial statements, maintain that technical analysis is akin to throwing chicken bones and reading tea leaves.

There are plenty of other methodologies as well. These include quantitative investing, cycle analysis, and growth at a reasonable price, to name just a few more.

Die‐hard supporters of all these strategies claim that their way is the only way to make money in the markets. It's almost like a religion, one whose most fanatical followers act as if their beliefs are the only truth—period, no debate, end of story. They're right and you're wrong if you don't believe the same thing they do.

I'm no authority when it comes to theology. But when it comes to investing, I know this: Dogma does not work.

You will not consistently make money investing only in value stocks. Again, sometimes they're out of favor. If you only read stock charts, sometimes you'll be wrong. Charts are not crystal balls. Quantitative...