Wharton professor and author Jeremy Siegel says dividend-paying stocks — not Treasury bills, which he says are back in “bubble” territory — are the place investors should look for yield.
“Despite the slow growth over the past decade, U.S. corporations, as typified by those in the S&P 500 Index, have been making record profits by enhancing productivity and deriving nearly half their sales from growing overseas markets,” Siegel writes in a Wall Street Journal column co-authored by Jeremy Schwartz, the director of research at WisdomTree Inc., the firm for which Siegel works as a senior advisor. “Despite the sluggish economy, the corporate sector is churning out record profits and increasing dividend payments. We believe dividend-paying stocks are the answer to a Treasury bond market that looks more dangerous than ever.”
Siegel and Schwartz say that, while investors have piled into inflation hedges like Treasury Inflation-Protected Securities and gold, equities are a better option. “Equities, like precious metals, are also real assets whose return has compensated investors for inflation,” they say. “Per share dividends of the S&P 500 firms have grown at 5% per year over the last half-century, which handily beat the average rate of inflation of 4% during the period. In fact, dividend growth has beat inflation both during the low inflation periods of the 1960s, 1990s and 2000s, and the high inflation periods of the 1970s and early 1980s.”
Siegel and Schwartz also note that while the financial crisis sent the dividend payouts of a bloated financial sector tumbling, non-financial firms have actually been increasing their dividend payments since 2007. Today, the aggregate dividends paid by non-financials is 20% higher than they were when the stock market was peaking in 2007. And, they add, financial firms’ dividends now account for about 16% of all dividends paid, down from more than twice that in 2007. That means that even if there’s another financial sector tumble, it won’t have as much of an impact on the market’s overall dividend payouts as it did in 2007, according to Siegel and Schwartz.