The Single Best Investment by Lowell Miller: Book Review

In "The Single Best Investment," Lowell Miller makes a strong case for dividend growth investing as the most reliable path to long-term wealth. Rather than chasing speculative gains or trying to time the market, Miller argues that buying high-quality companies with growing dividends - and holding them for decades - produces superior risk-adjusted returns over time.

This review covers Miller's core argument, his criteria for selecting dividend growth stocks, and how UK investors can apply his strategy using ISAs and SIPPs.

What Is Dividend Growth Investing?

Dividend growth investing is a strategy focused on buying shares in companies that consistently increase their dividend payments year after year. The idea is that a company able to raise its dividend over decades must, by definition, be generating growing profits. Over time, the compounding effect of rising dividends - reinvested or spent - creates a powerful wealth-building machine.

Miller's central thesis is direct: this single strategy, applied patiently, beats growth investing, market timing, and most active fund management. He backs this up with historical data showing that dividend growth stocks have delivered superior total returns compared to the broader market over long periods.

How Lowell Miller Identifies Quality Dividend Growth Stocks

Where the book really delivers is its practical framework for identifying companies worth owning. Miller outlines several criteria that UK investors can apply directly.

Strong Financial Health

Look for companies with solid balance sheets, consistent profitability, and healthy free cash flow. These fundamentals indicate a company's ability to sustain and grow its dividend payments through economic cycles. A company paying out dividends from debt or declining earnings is a red flag, not a buying opportunity.

Miller emphasises metrics like the payout ratio - the percentage of earnings paid as dividends. A payout ratio below 60% typically signals that the dividend is well-covered and has room to grow. For an introduction to evaluating companies this way, our guide to intrinsic value covers the fundamentals of business valuation.

Consistent Dividend Growth Track Record

A history of increasing dividends year after year is one of the strongest signals of a quality business. Miller suggests looking for companies that have raised their dividends for at least 10 consecutive years. In the UK, companies like Unilever, Diageo, and RELX have long dividend growth records, though none quite match the 25-year "Dividend Aristocrat" streaks common in the US market.

Durable Competitive Advantage

Companies with a durable competitive advantage - what Warren Buffett calls a "moat" - are better positioned to weather economic downturns and continue growing their earnings. This could come from brand strength (Diageo), network effects (London Stock Exchange Group), regulatory barriers (utilities), or economies of scale (Tesco).

Why Dividend Growth Beats Other Strategies

Miller compares dividend growth investing to the alternatives at length, and his arguments hold up.

Versus growth investing: Growth stocks can deliver spectacular returns, but they are also more volatile and more likely to suffer permanent capital loss. A company trading at 50x earnings needs to grow rapidly just to justify its price. A dividend grower trading at 15x earnings with a 3% yield needs only modest growth to deliver strong total returns.

Versus high-yield investing: A stock with a 7% yield might look attractive, but if the company cannot sustain that payout, the dividend gets cut and the share price drops. Miller argues that a 2.5% yield growing at 10% per year is far more valuable than a static 5% yield, because the growing dividend will overtake the high yield within a few years and keep compounding from there. Our article on whether yield on cost is useful explores this dynamic in more detail.

Versus index funds: Miller acknowledges that index funds are excellent for most investors, but argues that a carefully selected portfolio of dividend growers can deliver better risk-adjusted returns with lower drawdowns during bear markets. This is a debatable claim - SPIVA data from S&P Global shows most stock-pickers underperform indices over the long term. The honest answer is that dividend growth investing requires more skill and discipline than passive indexing.

How UK Investors Can Apply This Strategy

Miller writes from a US perspective, but his framework adapts well to the UK market with a few adjustments.

Using ISAs and SIPPs for Tax-Free Dividend Growth

ISAs and SIPPs are ideal wrappers for dividend growth investing. Dividends received within an ISA are completely tax-free, with no limit on the amount. Outside an ISA, UK investors receive a dividend allowance of £500 per year before paying tax at their marginal rate. For a portfolio generating meaningful dividend income, the ISA wrapper makes a substantial difference to after-tax returns.

SIPPs offer tax relief on contributions and tax-free growth, making them well-suited for the long holding periods that dividend growth investing demands.

Building a UK Dividend Growth Portfolio

The UK market has a strong tradition of dividend payments, particularly among FTSE 100 companies. Sectors with reliable dividend growers include consumer staples (Unilever, Reckitt), beverages (Diageo), healthcare (AstraZeneca, GSK), and financial services (London Stock Exchange Group, Prudential).

However, UK investors should be aware that the domestic market is heavily weighted towards financials, energy, and consumer staples. To avoid concentration risk, consider supplementing UK holdings with international dividend growers through dividend-focused ETFs or individual overseas stocks.

Diversifying Across Sectors and Geographies

While Miller focuses on individual stock selection, diversification remains important. A portfolio concentrated in one sector - no matter how strong the dividend growth - carries unnecessary risk. Aim for exposure across at least five or six sectors, and consider some international allocation to reduce country-specific risk.

Common Criticisms of Dividend Growth Investing

No strategy is without its critics, and dividend growth investing has several well-known counterarguments.

Tax inefficiency outside wrappers: In taxable accounts, dividends create an immediate tax liability, whereas capital gains can be deferred. This makes dividend growth investing less tax-efficient than accumulation-focused strategies outside ISAs and SIPPs.

Opportunity cost: By focusing on established dividend payers, you necessarily exclude high-growth companies that reinvest all earnings (like many technology firms). Over the last decade, this exclusion has been costly, as growth stocks significantly outperformed value and dividend strategies.

Dividends are not free money: Some investors treat dividends as "extra" income on top of share price returns. In reality, when a company pays a dividend, its share price drops by the dividend amount. Total return is what matters, not dividend income in isolation. For a deeper look at this debate, see our article on whether dividends are irrelevant.

Conclusion

"The Single Best Investment" by Lowell Miller makes a strong, evidence-based case for dividend growth investing as a reliable wealth-building strategy. His framework for identifying quality companies - strong financials, consistent dividend growth, and durable competitive advantages - gives investors a clear and repeatable process. For UK investors, the strategy works well within ISAs and SIPPs, where dividends compound tax-free. The approach demands patience and discipline, but for those willing to hold quality businesses through market cycles, the compounding effect of growing dividends is genuinely powerful.

Frequently Asked Questions

What is The Single Best Investment about?

The Single Best Investment by Lowell Miller argues that buying high-quality companies with consistently growing dividends - and holding them for decades - is the most reliable investment strategy. The book provides a framework for identifying these companies based on financial health, dividend track record, and competitive advantage.

Is dividend growth investing suitable for UK investors?

Yes. The UK market has a strong dividend culture, particularly among FTSE 100 companies. UK investors can hold dividend growth stocks within ISAs and SIPPs to receive dividends completely tax-free, which amplifies the compounding effect that Miller's strategy relies on.

How does dividend growth investing compare to index fund investing?

Miller argues that a carefully selected dividend growth portfolio can deliver better risk-adjusted returns than a broad index fund. However, this requires stock-picking skill and discipline. Most academic research suggests that passive index funds outperform the majority of active strategies over the long term, so investors should be realistic about whether they can consistently pick winners.

What is a good dividend growth rate to look for?

Miller suggests looking for companies that have grown their dividends at 7-10% per year over at least a decade. At a 10% annual growth rate, a 2.5% starting yield doubles to 5% within seven years and reaches 10% on your original investment within about 15 years.

What are the risks of dividend growth investing?

The main risks include concentration in mature, slower-growing sectors; the temptation to chase high yields rather than growing yields; and the possibility that past dividend growth does not guarantee future increases. Companies can and do cut dividends during severe downturns, as many UK investors experienced during the 2020 pandemic.

Further Reading:

The Intelligent Investor - Benjamin Graham - The foundational text on value investing, which shares Miller's emphasis on buying quality businesses at reasonable prices and holding them for the long term. (Affiliate link - we may earn a small commission at no extra cost to you.)

The Psychology of Money - Morgan Housel - Explores why patience and long-term thinking are the real drivers of investment success, complementing Miller's emphasis on decades-long holding periods. (Affiliate link - we may earn a small commission at no extra cost to you.)

The Single Best Investment: Book Review

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