High Dividend Stocks Are Looking Good says Siegel

As interest rates stay low, the appeal of high-dividend stocks has been on the rise and will probably only increase (as investors anticipate a dip in what is now an overvalued market). In a recent interview on CNBC’s “Trading Nation”, Jeremy Siegel (finance professor at the University of Pennsylvania’s Wharton School) asserted that low rates have shown investors that they can’t rely on CD’s, bank accounts or bonds as reliable sources of income. Dividend paying stocks, on the other hand, are yielding up to 4 percent (while 10-year Treasuries are yielding less than 2 percent).

If rates should rise due to a strengthening of the economy, dividends should be further supported as companies see earnings growth.  If rates stay low, investors will want the yields that equities provide. In the event of an inflationary environment, stocks may still be the favored asset since they typically rise under such conditions (as companies pass along higher prices to their consumers).

The scenario Siegel fears however, is one where inflation spikes without a concurrent strengthening of the economy. He said, “I would worry if I just saw a flare-up in prices and the Fed pulled really hard,” trying to reign it in by quickly increasing rates.