The Case for Dividend Growth: Investing in a Post-Crisis World

by David L. Bahnsen

Are you looking for an investment strategy that offers growth, income, and best of all, growth-of-income? The Case for Dividend Growth proposes the most effective method for exploring, realizing, and reaching your financial goals.

Both the tech bubble burst of 2000, and the financial crisis of 2008, poked significant holes in the primary investment belief of too many investors today—that one can just blindly withdraw from principal, and that equity returns will keep up. Too many investment advisors have taken the path of least resistance, not aware of the risk in systematically withdrawing from what, at times, will be a declining portfolio.

Investors seeking to accumulate money for their future needs, and investors needing to withdraw money now for a present need, both have one thing in common: Dividend Growth investing represents a powerful weapon in the achievement of their objectives. 

Market volatility is not something any investor can escape, but benefitting from it (for accumulators reinvesting dividends), and being insulated from it (for withdrawers taking only from a growing flow of dividend income), are achievable results for those who understand the time-tested, sustainable, intelligent strategy of investing that is Dividend Growth.

Genres: Finance, Nonfiction, Economics

192 pages, Paperback

Published April 28, 2020

About the author

David L. Bahnsen, CFP®, CIMA® is the founder, Managing Partner, and Chief Investment Officer of The Bahnsen Group, a bi-coastal private wealth management boutique based in Newport Beach, CA and New York City. managing over $1.2 billion in client assets. David has been named as one of Barron’s America’s Top 1200 Advisors, as well as Forbes Top 250 Advisors and Financial Times Top 300 Advisors in America. He brought The Bahnsen Group independent through the elite boutique fiduciary, HighTower Advisors, in April 2015 after eight years as a Chairman’s Club Managing Director at Morgan Stanley and seven years as a First Vice President at UBS Financial Services. He is a frequent guest on CNBC, Fox Business, and Bloomberg and is a regular contributor to National Review and Forbes.

David serves on the Board of Directors for the National Review Institute, is vice president of the Lincoln Club of Orange County, and is a founding Trustee for Pacifica Christian High School of Orange County.

David is a disciple of Milton Friedman, a lover of Ronald Reagan, and a “National Review kind of conservative” (the only kind). His prolific writings strive to reflect an ideology of freedom principles integrated with transcendent truths. His heroes are his late father, Dr. Greg Bahnsen, and Larry Kudlow, and he proudly claims heavy ideological influence from John Calvin, Abraham Kuyper, F.A. Hayek, Winston Churchill, C.S. Lewis, William Buckley, Margaret Thatcher, George Gilder, and Father Robert Sirico.

David’s true passions include anything involving related to USC football, the financial markets, politics, and his house in the desert. His ultimate passions are his lovely wife of 16+ years, Joleen, their gorgeous and brilliant children, sons Mitchell and Graham, and daughter Sadie, and the life they’ve created together in Newport Beach, California. David spends 18-20 waking hours per day thinking about the free and virtuous society.

His first book, Crisis of Responsibility: Our Cultural Addiction to Blame and How You Can Cure It, is scheduled for a February 2018 release.

Reviews

[Terry Koressel · Rating 3 out of 5]

The Case for Dividend Growth is an accurate title. Mr. Bahnsen does an admirable job analyzing and arguing the benefits of investing for the long term under all economic conditions in companies with solid fundamentals and proven, sustainable dividend growth . It might be a boring investment strategy; but it is a winning strategy if you can be patient for the 15+ years for the double compounding benefits to accelerate. His arguments are thorough, logical and complete. And he has decades of dividend growth investment management experience as his guide. Warning: He spends little, if any, time on the actual mechanics of successful dividend growth investing. This was not the point of his book. So why did I rate this book with only 3 stars? Two reasons: 1) There are several good competitive books on the same subject (Marc Lichtenfeld comes to mind); and 2) Many of the other books combine theoretical case for dividend growth investing as well as a guide to the mechanics of this investment strategy. If it is your first book on the subject....this is a good place to start. Mr. Bahnsen WILL convince you of the superior value of this investment strategy.

[Caleb Salmon · Rating 4 out of 5]

Bahnsen's thesis is simple and insightful. In sum, dividend stocks go to the heart of what is real in investing, that is, investors put money into a company hoping the company will be profitable and return their money + profit in the form of a dividend. Overall, his thesis is convincing and I buy in. One of his best sections is his one on compound interest; a great line was "Why is it [compound investing] a miracle? The Investor didn't have to do anything to make it happen; it is just math. [. . .] This elegant simplicity is the miracle of compounding."

Most of the meat of his argument is in chapters 3-5 (particularly in 3-4) with the rest being introduction and then response to concerns or arguments against dividend stock growth. While chapters 3-5 were digestible for me, the rest of the book is mainly written with an audience of wealth managers and professional investors in mind. It's not indiscernible to the layman, but I'd say feel free to just hit chapters 3-5 if you want the argument and case for dividend stock growth in short.

[Rafael Ramirez · Rating 5 out of 5]

Libro indispensable para todas las personas interesadas en sacar el mayor provecho de sus inversiones y de asegurar su patrimonio, ya sea que las administren directamente o que deleguen sus decisiones a terceros para que lo hagan por ellos. Si bien el libro trata de temas financieros, es lo suficientemente claro para cualquiera que tenga, por lo menos, conocimientos básicos de estos temas.

El argumento del autor es simple pero muy poderoso, la razón de invertir consiste en obtener de regreso tu dinero más un retorno, no en papel sino en efectivo, retorno que puede ser reinvertido para que se multiplique en el tiempo gracias a la magia del interés compuesto. Para esto, la mayor parte de nuestras inversiones se deben enfocar en compañías que no solo devuelvan dinero a sus inversionistas en la forma de dividendos sino que lo hagan de manera consistente y, sobre todo, creciente en el tiempo.

Además de asegurar un flujo constante, esta filosofía de inversión ayuda a disminuir la ansiedad que puede resultar de la volatilidad propia de los precios de las acciones en el mercado, al enfocarse en el efectivo que la empresa te regresa como accionista en relación al dinero que invertiste, no en relación al precio al que cotice una empresa en un momento dado.

Por otro lado, el enfoque en el compromiso de pagar dividendos suele resultar en equipos directivos que de manera más clara mantienen sobre otras consideraciones el interés de los accionistas a la hora de tomar decisiones, disciplina fundamental para el manejo eficiente de los recursos. De este modo, al invertir en estas empresas estaremos confiando nuestro dinero en compañías sostenibles y que realmente crean valor.

[Lynn · Rating 4 out of 5]

You had me at “dividend growth,” Mr. Bahnsen. :-). We first became acquainted with David Bahnsen as a result of listening to “The World and Everything In It” podcast on which he was featured every Monday. The language of finance and economics isn’t one that I speak or understand well, but I committed to reading this after my husband recommended it. It’s not written for someone who’s completely unacquainted with the world of investment and all of its terminology, but even so, I think I picked up on the essentials. Plus I had my husband to ask questions of when I found myself too deep in the weeds. I even read both Appendices (extra credit for me, please) and the second one, “Dividend Growth in the Context of a Fiduciary Standard” was positively inspiring. The title of it seems like dullness personified, but honestly, it was the best part of the book for me, detailing Mr. Bahnsen’s personal philosophy about the importance of investors serving their clients well and what that means.

[Maya Senen · Rating 3 out of 5]

While there are many truths shared about both markets and people, I remain skeptical dividend growth investing should be a sizeable percentage of our financial planning. It surely has its place for many investors, but likely not me.

The cases were often poorly argued. Sometimes as plainly as ipso facto. “You should do this because you shouldn’t do that.” The assumptions (most investors have a short horizon, lack discipline, are too emotional, etc) may very well be valid, but these aren’t reasons alone to adopt the strategy. Generally, there wasn’t a comprehensive discussion of alternatives, which was disappointing.

The author wholesale failed to address some of my concerns around the strategy. Namely: tax implications for MAGI rates (Net Investment Income Tax (NIIT) is an additional 3.8% I think on all investment income over 250K at the time of this post) and sector-based strategies. Maybe this is a strategy best shifted to in retirement, after one’s primary earning years? Maybe there is a stronger case for this for earlier investors, but not high earners? Lastly, just because the strategy isn’t defined BY sector does not preclude one from the liabilities of ending up over-exposed in a sector, by nature of the strategy. This was another consideration I was disappointed to see go unaddressed.

My instincts are to steer clear on this one, but of course hit me in the comments if you have more pieces of the puzzle or can help me move this discussion forward with answers to some of my concerns. I by no means am an expert and need all the advice I can get..!

[Paul Tautges · Rating 4 out of 5]

The world of investing has always been very confusing to me, but this book was a great help and assurance that the little bit that I am participating in is on the right track. I listened to it as an audiobook and found it very well done.

[William Schrecengost · Rating 4 out of 5]

Interesting. Convincing argument for using dividend stocks to grow your investment. He does emphasize a need for a well diversified portfolio. To vary risk and returns, but he argues for the superiority of dividend stocks.

[Michael Wu · Rating 4 out of 5]

Compelling case for an evergreen approach to wealth accumulation.

[Sam · Rating 5 out of 5]

Bahnsen's arguments for his investment strategy are well founded. It also makes a lot of sense within a Biblical understanding of who we are and the world we live in.

[Dan Berkholder · Rating 4 out of 5]

Really transformative look at what I'd considered being boring old person investing. Looking at the Biblical view of investing, Proverbs 13:11 says,

"Wealth gained hastily will dwindle, but whoever gathers little by little will increase it."

In my opinion, using the strategy that Bahnsen outlines align with this Biblical wisdom of investing.

I do wish that there were some case studies, or more robust instruction on what to look for in balance sheets, competitive edges, or any of the other lists of "things to look for" in this book. I really wish this book was another 100 pages longer towards that purpose of educating the savvy dividend growth investor. At least a list of books to further education on some of these company fundamentals would have been appreciated.

[C · Rating 3 out of 5]

I agree with the book. For us dividend growth is the ideal strategy. Problem is easier said than implemented!

[Nathan Michael · Rating 4 out of 5]

This book takes complex subjects and makes them simple to understand for the amateur investor. It's not merely a technical analysis but has psychological insights for investors; Bahnsen clearly has a wealth of experience to draw on. This book has changed how I think about investments and my investment strategy. While it’s not holistic by any means, it provides an excellent argument for including “high growth of dividend” stocks in your portfolio.

Here’s a good conclusion towards the end of the book: “This book is about investing in companies that grow their profits, and from those profits grow the dividends they pay their shareholders. This book is not about companies with a “high yield” – it is not proposing a grab for a “coupon” – and it is not about the mere accumulation of dividends. Our focus is on sustainable dividends, reflecting a high-quality company with a defensible business model.”

Below are a few notes I’ve taken while reading.

The Case for Dividend Growth by David Bahnsen
Ultimate goal of investments is a return on cash – sometimes get cash when sell, others with dividend payout. Dividends provide tangible cash while investment grows, rather than big payment at the end
Dividends powerful skin-in-the-game statement for companies; actions speak louder than words when it comes to company success
DRIP provides special compounding, even stronger wealth accumulation
Greater growth
Greater stability in volatility and market distress (dividends reinvested at lower stock value translates to greater stock value when markets return to normal)
Dividend payouts are never negative, unlike negative compounding in bad markets
Linear withdrawals assume and necessitate linear growth; dividends allow for fluctuating withdrawals and non-linear growth, more freedom
Not arguing for “high dividend” stocks, but rather “high growth of dividend” stocks. High yield stocks are not necessarily better, but consistently growing dividends are generally to be preferred.
High yield stocks could easily be “accidental” high yield stocks: they offer a decent return, the stock price drops but the dividend yield does not, meaning it appears high: this company is most at risk of a dividend cut
Don’t let “home bias” limit your investments using the dividend growth method

High quality stocks + High dividend yield + High growth of yield = Potential for high return

Universe limited to companies offering current yield > S&P 500 yield
Further purged to companies with dividend growth history, generally a minimum of >5% per annum for last 5 yrs.
Sustainability analysis of the dividend around:
Payout ratio
Balance sheet
Cyclicality of earnings
Free cash flow analysis
Qualitative analysis:
Do we understand the business?
Do we like the business?
Does the business model lend itself to transparency and comprehensibility?
Management culture
Dividend inclinations
Governance
Idiosyncratic factors:
What are the catalysts to growth?
Is there an under-appreciated story?

This type of analysis tends to find more large cap companies (or good-sized mid-cap)

“The embedded company quality lift in the world of dividend growth lends itself to a superior portfolio for those who care about risk management, balance sheet strength, and management alignment with shareholders.”

[Frode · Rating 4 out of 5]

Some disclosures: first, while I do not know David Bahnsen, his father and I were casual friends. Second, David’s fundamentalist approach is how I have invested over the years, so I am firmly in his camp on that score. That said, I enjoyed the book. The writing is clear and logical; it reminds me of the way his dad approached an argument. He does belabor the point, but his constant hammering away definitely drives that point home, namely, buy dividend stocks that have a good history of increasing their dividends over time.

Compounding is not sexy, but over time it is extremely effective. While the author does not specifically talk about DRIPs, the inference for them is strong. They multiply the compounding effect, which is an excellent way to increase capital. They are done sort of behind the scenes if you will; the stock owner does nothing but let the company reinvest the dividends. A couple of things were not mentioned about dividend accumulation. First is the tax consequence. Uncle Sam wants his share of the dividends since they are considered regular income, so the stock owner is paying taxes every year on whatever dividends accrued that year. The second thing I ran into was that if a sale of the stock was to take place, it couldn’t be partial. That was a few years back and may have been company specific, so it might have changed, but it is a consideration worth noting.

The chapters are broken up into various aspects of his argument. Compounding of course, but also inflation and withdrawal and so forth. One negative for me was the charts and graphs. The lines were very light, and the type was very small, neither of which was helpful to me. I thought he gave a clear and concise explanation of technical and fundamental analysis on page 30. It is a book for younger to middle aged people since this strategy requires time to work well. Read it and heed the advice given.

[Enrique Mañas · Rating 4 out of 5]

"The Case for Dividend Growth" is a modest book without grand premises, yet it offers undeniable value and surprises.

Prior to reading this book, I was unfamiliar with David Bahnsen. It came into my possession after Antonio Rico (manager of the Baelo fund) recommended him on Twitter. David, a portfolio manager based in California, prioritizes a dividend growth investing (DGI) strategy in his own fund.

I often critique books that could have been condensed into Medium articles, but one aspect I appreciated about this book is its appropriate length. I completed it in two days, and it doesn't feel like a repetitive circular labyrinth. It's just right.

Published in 2019, the book touches on early-century economic crises but does not cover the Covid pandemic and its aftermath. This aspect also captivated me, as the author analyzes the historical transformation of companies like Apple, Microsoft, and Cisco from being dividend skeptics to becoming major dividend payers worldwide.

Additionally, I found a few interesting notes worth mentioning:

- Extremely high dividend yields often signal problems and potential dividend cuts. Don't invest in companies solely for their high dividends.
- The author prefers companies in his fund that have a minimum yield of 2% and have demonstrated at least 5% annual dividend growth in the past five years.
- Dividend buybacks may have a reasonable theoretical premise, but they generally fail to generate tangible returns for shareholders unless the company also pays a dividend.
- High-growth non-dividend-paying companies may be impressive, until you face retirement during a market crash.
- The 4% withdrawal rule for retirement is not without risks unless the portfolio includes dividend growers.

Overall a really nice weekend read.

[Chris · Rating 4 out of 5]

The Skinny: A very helpful book to understand the benefits of dividend growth investing.

The Good: Very clearly lays out the benefits of dividend growth investing (not high dividend investing, dividend growth!) and why it is such a powerful strategy to the judicious and patient investor. Generally digestible to read and not very technical. I was already a believer in the strategy but this shored it up for me.

The Bad: I read the authors newsletters religiously and am a big fan generally, but in this book I find the writing style to be very tough. He writes as if he's sitting in a study swirling a glass of wine and speaking to a secretary who is dictating his words. Way too circuitous with phrases like "it is my contention here" or "I am not suggesting" and rhetorical questions and saying what he's about to say. Wish it was a more straightforward style.

[Joseph Elfar · Rating 5 out of 5]

David has a remarkable ability to distill very difficult financial concepts into plain language. Throughout the book, he gave a very good and concise financial history of the 3 decades from 1990-2020, being able to look back at this time with clarity and focus.

David also helps the reader understand dividend growth, EPS, share buybacks in very plain language without complicated financial equations. Ultimately David helps you think about dividend growth as yet another tool of fundamental analysis which appears to be answering the question of: What does a"healthy" company look like?

My first read through this book was very enjoyable, I found a lot of wisdom in it and I cannot wait to read it for a second time!

[Matt Pelto · Rating 5 out of 5]

Disclaimer: I have not yet put into practice the advice of this book.

In this book, David Bahnsen presents a compelling case for the method of dividend growth investing. Citing the concept of double compounding growth and market data, he advocates for investing in companies who demonstrate their commitment to shareholders by growing their dividends and reinvesting them into like-minded companies. In truth, the evidentiary argument is supplemental to the philosophical argument of investing as the ownership of sound, worthy companies. I was thoroughly convinced of Bahnsen's methodology, especially because it addressed the greatest enemy in investing, the investor's own human nature.

[Ginger Hudock · Rating 4 out of 5]

I was aware of David Bahnsen from a previous book I read and his Dividend Cafe podcast. This is an excellent, logical book for the person who is (or wants to be) an active investor. My only caveat is that it may be difficult reading if you are not familiar with business financial statements.
I have an MBA in Finance and am conversant with these, so it was an excellent book.
Make stocks who are growing dividends the backbone of your investments and you will do well. Bravo to Bahnsen for helping this investor understand (and agree with) this strategy.

[Zak Mellgren · Rating 4 out of 5]

I am a fan of David from his Monday Money Beat segment on The World and Everything In it podcast. A few months ago I started checking in fairly regularly with his Dividend Cafe updates. And now I've read one of his books. I'm not a finance expert, financial advisor, or stock trader, so I hardly feel qualified to offer any thoughts other than to say I found Bahnsen's arguments compelling and convincing. Investing in companies that put their money where their mouth is makes an awful lot of sense to me.

[Katie · Rating 4 out of 5]

I've started listening to Bahnsen's podcast (Dividend Café) for the past few months and thought I'd try a book from him too. Like the podcast, I understood very little of this audiobook, but that's simply a reflection of my ignorance of the topic, not a fault in his presentation or expertise. Perhaps if I learn more about investing, this would be a good book to return to after my newfound understanding.

[Seth Mcdevitt · Rating 5 out of 5]

Excellent

This book is a necessary and helpful addition to my library of books on investment. If I wasn’t convinced of the wisdom of dividend growth investing before this read, I am now. Benjamin Graham would be proud (I think), this is certainly an intelligent way to allocate a sizable portion of your portfolio. Worth time and money.

[Cole Brandon]

David Bahnsen has developed a philosophy of investing contrary to the cult of emotional/excitable investing, driven by foundational principles. Bahnsen has a semi-strong market outlook. I would want to do more research before I gave this book a rating. I defiantly appreciate Bahnsen’s realistic optimism.

[David Rosage · Rating 5 out of 5]

This book made an excellent case for Dividend Growth Investing and it has altered the course of my investing moving forward. I suffered from the desire to pick the right time and seek the highest current yield and suffered some of the consequences in my outcomes. I am looking forward to many future dividends from this great read.

[Joseph · Rating 4 out of 5]

I appreciate this book. I'm leaning more and more toward cash flowing real estate, so I generally agree with Bahnsen's approach. I would also want to see dividends if I invested in a private business.

[Josiah DeGraaf · Rating 3 out of 5]

As someone very new to this topic, this book wasn't the right fit for me as a good part of it was written to people more knowledgeable than I am. Seemed like a solid book--I'm just not the target audience for it.

[Ryan Madden · Rating 4 out of 5]

I liked it. Good book extolling the merits of dividend growth investing. Which, the author points out, is different than simply dividend investing. I believe him. Lots of useful viewpoints in here. I really appreciated the author's earnestness.

[Jordan · Rating 5 out of 5]

Excellent.
Has had a significant impact on my personal investing journey

[George Luke · Rating 5 out of 5]

Amazing. Thankful for the clear anthropological, mathematical and guideline case for dividend growth. Chapters 1, 10, and Summary, along with 3,4,5 for the argument, are all worth future reviews.

[Nick Suire · Rating 4 out of 5]

Such deep interesting knowledge on a topic I love. Fundamentals will always lead to success!

[Ryan · Rating 4 out of 5]

The principles are sound and the case well-made. I’m convinced that this is how you invest in productive human activity rather than gamble with the market.