Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor

Portfolio > Economy & Markets > Stocks

Jeremy Siegel Slams TIPS, Recommends Dividend-Paying Stocks

By John Sullivan

X
Your article was successfully shared with the contacts you provided.

Jeremy Siegel, a Wharton professor and frequent industry lecturer, took to the pages of The Wall Street Journal on Monday to warn of the dangers of the Treasury bond market.

In an op-ed co-authored by Jeremy Schwartz, director of research at ETF provider WisdomTree Inc. (where Siegel is a senior advisor), he writes dividend-paying stocks, backed by record amounts of cash, are a wise defensive move in light of the current environment.

“Long-term rates did in fact rise sharply last fall, but recently, on the heels of the economic slowdown and the Federal Reserve’s ‘pledge’ to keep interest rates low for the next two years, U.S. Treasury rates plunged to even lower levels than last summer, reinflating the bubble to the bursting point,” the authors write.

They take particular umbrage with the Treasury Inflation Protected Securities (TIPS) market, writing that recent yields “should be enshrined in Ripley’s ‘Believe It or Not!’”

“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. This astounding situation can only be justified by extraordinary pessimism about the prospects for the U.S. economy.”The authors note that prior to the recent recession, there were only five years in the history of the S&P 500 when dividends declined. They add the maximum yearly decline was just 3.3%.

“Despite the recent surge in bond prices and fall in the stock market, portfolios of dividend-paying stocks that we recommended a year ago have matched the returns of both the standard and inflation-protected Treasury 10-year bonds. We believe that when investors awake from their depressed state, they will realize that they don’t have to lend the U.S. government money for 10 years at a negative real yield.”

Their conclusion?

“Despite the sluggish economy, the corporate sector is churning out record profits and increasing dividend payments. We believe dividend-paying stocks are the answer to a Treasury bond market that looks more dangerous than ever.”

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.