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Dividend Guru Sees Great Stock Values Now

By Dan Weil   |   Tuesday, 25 Aug 2009 11:31 AM

Jeremy Siegel, the best-selling author and finance professor, says he sees a great opportunity for dividend stock buyers in the coming months.

In a recent exclusive interview with Moneynews.com's Dan Mangru, Siegel argues that dividends stocks were punished by the financial collapse because banks are such big dividend payers, and they got crushed in the meltdown.

Watch Full Interview by Clicking Here

“What might surprise investors is that dividend-paying stock portfolios have done extremely well during that period,” Siegel says now.

“What also might surprise investors is that outside of the financial sector, we’ve actually had dividend growth in the other nine sectors of the economy.

“I’m looking for a bright future for dividend-paying stocks for the next year or two.”

Siegel wrote the book on dividend investing, the best-selling dividend bible, "Stocks for the Long Run."

But his newest book, "The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New," is probably an even more important book.

In it, Siegel narrows down to the “core” dividend stocks that outperform trendier dividend plays.

Free Offer: Receive “Future for Investors” today.

For right now, Siegel likes consumer staples stocks, pharma (particularly stocks like Johnson & Johnson with a consumer product line), and even oil stocks

Retailers like Wal-Mart, Target, and others are beginning to raise their dividends, Siegel points out. “And we should not forget about the oil industry, which is selling at very cheap valuations right now.”

“There are a lot of good dividend prospects. What’s attractive about these dividends stocks now is the interest rates we can get beat the bank by a wide margin,” Siegel argues.

“Just sitting on these stocks and collecting your dividends you’d be doing better than just putting your money in CDs.”

Broad indexes can be misleading, Siegel says. Standard & Poor’s understates earnings for companies in its 500 stock index and thereby hides the fact that some stocks are undervalued.

“The billions of dollars of losses racked up by, say, AIG, whose market value is extremely low, is added dollar for dollar to the earnings of the profitable firms, such as Exxon Mobil, whose market value is more than 20 times larger.”

“The methodology gives far too much influence to firms with big losses and low market values, and thereby gives a distorted valuation to the index,” Siegel says

Siegel instead wants to weight the earnings of each company by its current market value, in a fashion identical to the way the return on the index is computed.

“This alternative methodology leads to substantially higher earnings for the index than does the S&P methodology,” he says.

“The true valuation of the market is nowhere near as dismal as the aggregate earnings reported by S&P suggest,” Siegel says.

“Research is very clear that value investing, or high dividend investing, is the best long-run investing style that you can adhere to,” he tells Moneynews.

As for the economy, Siegel is a long-term bull on U.S. equities, although he recognizes the huge run up in foreign stocks since the spring.

The next 100 years will “most certainly” be as good for America as the last 100, Siegel says.

“Major growth will be in Asia. … But that doesn’t mean that American companies can’t take advantage of that growth.”

Siegel warns investors not to be “mesmerized” by the high economic growth of emerging markets. “Many of those high growth countries have overvalued stock markets,” he says.

“That was certainly true of China a year, one-and-a-half years ago. They came down very dramatically, and I think became a good value again, but you have to watch out. … You must look at value all the time.”

Watch Full Interview by Clicking Here

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Jeremy Siegel, the best-selling author and finance professor, says he sees a great opportunity for dividend stock buyers in the coming months.In a recent exclusive interview with Moneynews.com's Dan Mangru, Siegel argues that dividends stocks were punished by the financial...
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