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Kelley Wright book published 2010 as follow up from Geraldine Weiss 1988 book Dividends Don't Lie.

Book is intended at US investors with a 5Y to 20Y investment horizon.

Defines blue chip stocks as:

  • dividend increased 5 times in past 12 years -- 12 years allows to capture a business cycle
  • S&P quality ranking of A (this is Earnings and Dividend rankings, not credit ratings), company downgrade to C leads to sale
  • more than 5m shares outstanding -- for liquidity
  • 80+ institutional investors -- show evidence of widespread interest in stock
  • 25y+ of uninterrupted dividends -- companies that paid div for only 10 or 15 years are not as stable
  • earnings improved in 7 of last 12 years -- business cycle again

The author explains the reasons for these rules but does not go into backtesting them.

Out of 15000 companies, only 350 companies are blue chips.

Dividend tax was cut from 38% to 15% in 2003 by Bush, and yet Yagan claims that it did not spur incentives, though we expect capital to be returned more efficiently by dividend than stock buyback when stocks trade at a high multiple.

Measures of good value include:

  • dividend yield that is historically high for that stock, where that yield generally signals bottom
  • low P/E stock compared to DJIA average, unless it is a growth stock
  • current ratio above one and debt-to-equity ratio below 0.5
  • price no higher than 1/3 above book value

Investors get what they want from the market, some want to be entertained, some to be able to whine about how the market is unfair to the small investor, some are just patient investor who will invest only when the numbers makes sense.