Excerpts from the Book
“Dividend growth investing is about the return of profits to the owners (risk-takers) of a business. Those owners are, in almost all cases I describe in this book, minority owners of a public company in which they have no operational control. Dividend growth investing is not about what a company does to generate profits; it is about how management treats the profits that a successful business generates. A dividend growth company could be a cutting-edge technology company involved in transformative innovation or it could be a public utility that provides gas and electricity to Midwestern Americans. What makes the company a dividend growth company is that it (a) has profits, (b) has chosen to return a portion of those to its owners in the form a dividend, and (c) has a profit profile and commitment/comfort/intention which enables it to grow that profit return year-over-year.”
-p. 45
“The major thesis behind dividend growth investing is that the corporate disciplines that enable it offer extraordinary protection from risk and align investors with the best side of business performance and acumen. It allows investor return to come from that dynamic I described in Chapter One: the creative, productive, innovative aspect of human action. It requires much less of the return to be about investor sentiment and instead makes the source of the return the business endeavor itself. Put differently, dividends are endogenous (created by the business itself), and what many investors are relying on is exogenous (a by-product of the psychology of the masses).
I believe that dividend growth and the corporate culture that fosters it exists when management views their shareholders as fellow owners of the business (which they are), and not as speculators and traders renting shares and happy to go along with whatever stock price optics might work.”
-p. 53
“The primary theme of history remains the primary theme now—that companies who prioritize a return of profits to shareholders are companies who maintain durability, who manage risk, and who are most likely to succeed for the long haul. There are companies that fail with good capital return policies, sure, but this is the key: They did not fail because of their capital return policies. They failed because of something inherent in the business model or execution. The same cannot be said for most companies that fail with no capital return to shareholders. They either fail because they never did convert their hype into profitability (Problem 1), or they fail because they never converted their profitability into something sustainable (Problem 2). Their arrogant claims of “infinite growth opportunities” facilitated capital destruction as expensive M&A was pursued, noneconomic interests were prioritized, and vanity projects and non-core competencies destroyed the good things that the company was otherwise doing. This is perhaps the most consistent pattern in American corporate history.”
-p. 67
“The unpredictable nature of market volatility leads to a situation where long-term investors with a diversified portfolio of dividend-growing stocks cannot help but to receive dividends throughout their investing lives (reinvested in shares of the same company paying the dividend) at all sorts of different prices (up, down, and sideways). That accumulation of reinvestment shares in downside market volatility is automatic; it is outside the need for human talent or prescience, and it is wildly opportunistic.”
-p. 104
“So, I ask you, as an investor, what seems more rational? Investing with some plan for the events that have an 80 to 95 percent chance of happening, but without the gift of prophetic timing? Or, investing for events that have a 1 to 5 percent chance (and if you want to say 20 percent, be my guest), but have never happened before, and if they did, leave almost any investment plan obsolete? At the farthest end of left-tail risk events, I do not think enough bearish investors have actually thought through counter-party risk. Let me put it this way: good luck collecting.”
-p. 169
