Tags: Siegel | Schwartz | Dividend | Stocks

Siegel & Schwartz: Buy Dividend Stocks, Avoid Bond Bubble

Monday, 22 Aug 2011 09:07 AM

Economist Jeremy Siegel and Wisdom Tree director Jeremy Schwartz say investors should calm down, take a deep breath and buy more dividend stocks.

"Despite the sluggish economy, the corporate sector is churning out record profits and increasing dividend payments," Siegel and Schwartz write in The Wall Street Journal. "We believe dividend-paying stocks are the answer to a Treasury bond market that looks more dangerous than ever."

Dividend growth in the last two years has averaged over 10 percent per year, more than twice the long-term dividend growth rate, as firms begin to return their record cash balances to shareholders, Siegel and Schwartz note.

One market that now makes no sense to them is the popular Treasury Inflation Protected Securities (TIPS).

"The yield on the benchmark 10-year TIPS turned negative for the first time in history, meaning investors are now lending money to the government with the hope of receiving a sum 10 years from now that is worth less in purchasing power than the dollars they fork over today," they say.

Siegel and Schwartz say that the zero GDP growth expectations now embedded in the 10-year TIPS prices would require that productivity growth fall to zero.

“Our view is that productivity growth is more likely to accelerate in the future, not decelerate, as the global economy becomes more connected and firms use their resources more efficiently,” they say.

Bloomberg reports that Citibank analysts cut their 2011 GDP growth forecast to 1.6 percent from 1.7 percent and lowered their 2012 GDP growth estimate to 2.1 percent from 2.7 percent.

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Economist Jeremy Siegel and Wisdom Tree director Jeremy Schwartz say investors should calm down, take a deep breath and buy more dividend stocks. Despite the sluggish economy, the corporate sector is churning out record profits and increasing dividend payments, Siegel...
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2011-07-22
Monday, 22 Aug 2011 09:07 AM
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