Dividends Don't Lie

Weiss founded the Investment Quality Trends newsletter in 1966 and wrote this with Janet Lowe to set out the dividend yield method she used.

The method rests on one observation: a company's dividend yield oscillates within a historical range, and the boundaries of that range identify undervaluation and overvaluation more reliably than earnings-based measures. Weiss argued that earnings are subject to accounting discretion while dividends are cash actually paid, so a yield-based valuation rests on a harder number. For each qualifying stock she plotted the price levels corresponding to the historically high yield and the historically low yield, and treated the first as a buy area and the second as a sell area.

The qualification criteria matter as much as the method. She restricted the approach to companies she called blue chips, requiring a record of dividend increases, an investment-grade credit rating, no dividend reduction over a long period, at least five million shares outstanding, institutional ownership, and earnings improvement in a majority of recent years. The method does not apply to companies without a long dividend history, which is its main constraint.

The approach worked well over the period Weiss documented, which was dominated by mature dividend-paying industrials and utilities. Its applicability has narrowed substantially. Companies now return capital through repurchases as well as dividends, which breaks the historical yield comparison; the largest companies by market value pay small or no dividends; and payout ratios have shifted, so a company's own dividend history is a less stable benchmark. The underlying idea, that a company's own valuation history provides a better reference than cross-sectional comparison, remains defensible and can be applied with total shareholder yield instead.

American financial journalist and biographer of Charlie Munger, Benjamin Graham, Warren Buffett and Bill Miller.

Damn Right! is the standard full-length life of Charlie Munger, built from interviews with Munger, his family and his partners, and the Graham volumes put writings and lectures that had gone out of print back in circulation. The books supply the biographical record behind quotations that circulate everywhere else without sources.