Siegel: Don't Forget the Dividend

While flashy technology stocks tend to get a lot of attention, author and Wharton professor Jeremy Siegel says investors should focus on a less-glamorous — but more rewarding — area of the market: dividend stocks.

In a recent interview with IndexUniverse.com, Siegel says dividend yields are one of the key factors his firm screens for when picking stocks. “You go down to the basic definition of an asset price: It’s the present value of cash flows, and for a firm, that is dividends,” he says. “So there’s a lot of logic in making that one of your most important screens that you use for a fundamental weight.”

As for tech stocks — which usually pay little or no dividends — Siegel isn’t that keen on them (though he says he’ll give them their due weight when they pop up on his firm’s earnings screens). “I know they’ve done really well in the last couple of years, and they did really well in ’97 to ’99,” he says. “There’s a time for tech stocks. But over the long run we’ve found that tech stocks and very-low- or no-dividend stocks are the worst performers. … My historical studies have shown that they’re not a big winning sector for the economy and for investors.”

Siegel also discusses the U.S. economy, which he continues to think will fare better than many think. “We’re going to have above-trend growth — I see absolutely no second dip,” he says. “I’m not saying there won’t be some quarters that are a lot better than others. But what I’ve seen is that it’s now turning into a self-sustaining recovery.”

The situation in Europe is a different story, but Siegel says it’s not the same as the horrible credit crisis that rocked U.S. and global markets in 2008, when “no one knew which assets were good and which assets were bad outside of the Treasury”. Siegel also offers his take on how young investors with an appetite for risk should position themselves.

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