In a world of near-zero interest rates, the best place to find yield right now is old-fashioned dividend-paying stocks, says Wharton School's Jeremy Siegel.
Siegel notes that pessimists worry the stock market has "gotten ahead of itself."
"If anything, the market is behind itself," Siegel told a Canadian Imperial Band of Canada meeting, The Fiscal Times reports.
According to Siegel, author of “Stocks For The Long Run,” stocks have never been so favorably priced as they are in the current financial environment of ultra-low interest rates.
(Associated Press photo)
Siegel demonstrated to his audience that U.S. stocks sorted by high dividends or low price/earnings (P/E) ratios generated outsized returns for investors during the so-called "lost decade" of 2000 to 2010.
While the highest P/E stocks (the worst 20 percent of the S&P 500) would have lost 5.67 percent a year, the lowest P/E quintile of stocks would have returned 9.58 percent.
Similarly, the lowest quintile of dividend-paying stocks lost 2.82 percent while the highest-yielding stocks returned 5.08 percent.
The Canadian Imperial Bank of Commerce recently announced a new five-year note based on Siegel's strategy: the CIBC Wisdom Tree Value Strategy Notes, Series, 1
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Meanwhile, investors have become a little more upbeat heading into the second half of the year, lifting stock allocations from 2011 lows but remaining cautious with plenty of safe-haven cash and bonds.
They also lifted their exposure to euro zone stocks and bonds in the month, despite the ongoing debt crisis.
Reuters asset allocation polls released on Thursday showed leading investors across the world recovering from May's retrenchment, brought on by fears over a stagnant U.S. economy, potential over-heating in China, and the euro zone debt crisis.
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