Get Rich with Dividends Review: The 10-11-12 System

Dividend investing is one of the most straightforward paths to building long-term wealth, and Marc Lichtenfeld's Get Rich with Dividends is one of the best books on the subject. The core of the book is his 10-11-12 system - a simple screening method for finding dividend growth stocks that can compound into serious income over time. This review covers how the system works, why compounding dividends is so powerful, and how UK investors can put Lichtenfeld's approach into practice.

What Is Dividend Growth Investing?

Dividend growth investing focuses on companies that not only pay dividends but consistently increase those payouts year after year. The appeal is twofold: you get a rising income stream and the potential for capital appreciation as the market re-prices the growing earnings.

Lichtenfeld's thesis is simple: companies with a long track record of raising dividends tend to be well-managed, financially strong businesses. His 10-11-12 system gives investors a concrete way to screen for them.

How the 10-11-12 System Works

The 10-11-12 system is a straightforward screening method for dividend growth stocks. Each number represents a specific filter:

1. 10-Year Track Record: The company must have increased its dividends for at least 10 consecutive years. This criterion ensures that the company has a history of rewarding shareholders and demonstrates financial stability.
2. 11% Return on Equity (ROE): The company should have an ROE of at least 11%. ROE measures a company's profitability by revealing how much profit it generates with the money shareholders have invested. A higher ROE indicates efficient management and a healthy business.
3. 12% Dividend Yield on Cost: While the current dividend yield may fluctuate, the goal is to achieve a yield on cost of at least 12%. This means that if you bought the stock at a price that provides a 12% yield based on the current dividend, you're in a good position.

By applying these filters, investors can create a portfolio of stocks that are likely to continue growing their dividends, providing a steady income and the potential for significant long-term gains.

Why Compounding Dividends Is So Powerful

The real engine behind Lichtenfeld's strategy is compounding. When a company raises its dividend, you receive more income. If you reinvest that income, you buy more shares, which generate even more dividends. This cycle accelerates over time.

Here is a concrete example: invest £10,000 in a stock yielding 3% that raises its dividend by 5% annually. In year one, you receive £300. By year 10, the annual dividend on your original shares alone has grown to roughly £489. By year 20, it has reached about £796 - nearly triple the starting income, without investing another penny. You can model scenarios like this with a compound interest calculator.

Reinvesting dividends through a dividend reinvestment plan (DRIP) amplifies this effect further. Each reinvested dividend buys more shares, which generate more dividends, creating a self-reinforcing loop. This strategy works best inside tax-efficient accounts like ISAs and SIPPs, where dividends and capital gains are sheltered from tax.

Practical Steps for UK Dividend Growth Investors

For UK investors, dividend growth investing fits naturally alongside other strategies. Here is how to get started:

1. Screen using the 10-11-12 criteria: Apply Lichtenfeld's filters to FTSE-listed companies or international stocks available on your platform. Look for companies with at least 10 years of consecutive dividend increases, ROE above 11%, and the potential for 12% yield on cost over time.
2. Diversify across sectors: Spread your holdings across different industries - utilities, consumer staples, healthcare, financials - to reduce the impact of any single company cutting its dividend.
3. Review annually, not daily: Check your holdings once or twice a year to confirm dividend growth is on track. Frequent trading defeats the purpose of a buy-and-hold dividend strategy.
4. Use ISAs and SIPPs: These tax-efficient wrappers shelter your dividends from income tax and your capital gains from CGT. Over decades, the tax savings compound alongside your dividends.

If you are weighing dividend investing against other approaches, our guide to dividend ETFs as a long-term strategy covers the passive alternative.

Common Criticisms of the 10-11-12 System

No system is perfect, and it is worth understanding the limitations. The 10-year dividend growth requirement excludes younger companies that may have excellent prospects but have not been paying dividends long enough. The 12% yield-on-cost target is also aspirational - it requires both a reasonable entry price and sustained dividend growth for years. Some critics argue that chasing yield on cost can lead investors to hold onto deteriorating businesses simply because the cost basis is low. Lichtenfeld acknowledges these risks and recommends selling if the fundamental thesis breaks down, but investors should go in with realistic expectations. The debate over whether yield on cost is a useful metric is worth reading alongside this book.

Conclusion

Marc Lichtenfeld's Get Rich with Dividends is a clear, practical guide to building wealth through dividend growth stocks. The 10-11-12 system gives investors a concrete screening framework, and the book makes a strong case for the power of compounding dividends over decades.

For UK investors, this approach works especially well inside tax-efficient wrappers like ISAs and SIPPs. By focusing on companies with proven dividend growth, reinvesting payouts, and holding patiently, you can build a portfolio that generates rising income year after year. Whether you are just starting to invest or looking to add a dividend tilt to an existing portfolio, this book is a solid starting point.

Frequently Asked Questions

What is the 10-11-12 system?

The 10-11-12 system is Marc Lichtenfeld's method for screening dividend growth stocks. It requires at least 10 consecutive years of dividend increases, a return on equity of at least 11%, and the potential to achieve a 12% yield on cost over time.

Is Get Rich with Dividends suitable for UK investors?

Yes. While Lichtenfeld writes from a US perspective, the principles of dividend growth investing are universal. UK investors can apply the 10-11-12 criteria to FTSE-listed stocks or use ISAs and SIPPs to hold international dividend growers tax-efficiently.

What is yield on cost and why does it matter?

Yield on cost measures your annual dividend income as a percentage of what you originally paid for the stock, not its current market price. It shows how effectively a dividend grower has increased your income over time. A stock bought at 100p paying a 3p dividend has a 3% yield on cost; if the dividend grows to 12p, your yield on cost reaches 12%.

How does dividend reinvestment boost returns?

When you reinvest dividends, you buy additional shares that generate their own dividends. Over time this creates a compounding loop - each reinvested dividend adds to your share count, which increases future dividends, which buy more shares. The effect accelerates over decades.

What are the risks of dividend growth investing?

The main risks are dividend cuts (if a company's earnings deteriorate), concentration in mature sectors (since younger growth companies often do not pay dividends), and the temptation to hold a deteriorating position simply because the yield on cost looks attractive. Diversification and regular portfolio reviews help manage these risks.

Further Reading:

The Intelligent Investor - Benjamin Graham - Graham's emphasis on margin of safety and fundamental analysis complements Lichtenfeld's dividend screening approach perfectly. (Affiliate link - we may earn a small commission at no extra cost to you.)

The Little Book of Common Sense Investing - John Bogle - For investors who prefer the passive route, Bogle makes the case for index funds - a useful counterpoint to Lichtenfeld's stock-picking approach. (Affiliate link - we may earn a small commission at no extra cost to you.)

Read Next

• What Is Dividend Investing?
• Dividend ETFs as a Long-Term Strategy
• Is Yield on Cost a Useful Metric?
• Dividends Still Don't Lie: A Review