Jeremy Siegel on why you need dividends


Here’s why you should still love high dividend-paying stocks.

No money for you!

In the U.S., the dividend payout ratio — the percentage of net income paid out to investors as dividends — has slid to the lowest level in recorded history, less than half of where it stood for most of the past century. If the ratio returned to its historic average, the Dow Jones Industrial Average would yield more than 5%, up from 2.5% today.

That decline hasn’t been good for investors. History makes clear that companies that pay higher dividends produce, on average, greater shareholder returns. That’s one reason dividend achievers like Altria and Coca-Cola have crushed the broader market average over time.

Here in Australia, things are a little different. Our S&P/ASX 200 index already trades on a dividend yield of close to 5 per cent, no doubt boosted by the chunky yields of the big four banks, namely Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC).

In an interview earlier this month, Morgan Housel sat down for a wide-ranging interview with famed Wharton finance professor Jeremy Siegel. Here’s what he had to say about the decline in the U.S. dividend payout ratio, and why investors should still love high dividend-paying stocks.

 

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This article was originally published on Fool.com. It has been updated.

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