Book Review: Dividends Still Don't Lie

Dividends Still Don't Lie (2010) by Kelley Wright

This book presents an interesting approach to dividend investing. In a nutshell, you buy a stock when its dividend yield reaches historically high levels and you sell it when its yield reaches historically low levels. However, there were some things about the strategy that struck me as odd or weak. First, nothing is said about dividend reinvestment, which is surprising. Second, the strategy does not really take advantage of the compounding power of long-term dividend growth; instead, dividend growth is used primarily as a screening criterion for stock selection, not as a means for producing a rising income stream. Third, it seems as though a strong adherence to the strategy could put you out of the market (i.e., in cash) for several years at a time. Although you could realize substantial capital gains at the sell-off, in subsequent years your cash would lose purchasing power due to inflation and you would have a very weak or non-existent income stream from dividends. Fourth, the author acknowledges that the strategy has not really fit with the market as a whole since 1995. However, instead of treating this as a weakness of the strategy, he tries to explain it away by arguing that a "perfect storm" of conditions created a situation that was incompatible with the strategy. Thus, I cannot say that I was enamored by the strategy, but I do see the merit in using dividend yield as a tool for managing a dividend portfolio. The book itself also has some weaknesses. First, the author presents no detailed analysis of the strategy in practice to show its actual rate of long-term success; this is a glaring omission. Second, the writing is very long-winded and redundant, and there are several large, multi-page tables that are useless. Even though the book is only 200 pages, it could easily be cut down to about 130 pages without loss of meaningful content. Third, the author frequently plugs his paid-subscription newsletter that is all about the strategy and stock picks based on it, and I don't care for that kind of advertisement.

Note: I read this book in September 2011.