Seven Key Ways to Profit from Dividend-paying Equities

Seven key ways to profit from dividend-paying equities came from iconic economic professors who also are accomplished market forecasters.

The seven key ways to profit from dividend-paying equities are led by the stock market for the long run, using dollar-cost averaging and preparing for the unexpected. Those seven key ways to profit from ways to maximize investment returns have met the demanding standards of statistical analysis from the prescient pair of premier professors.

Investment and academic icons Burton Malkiel and Jeremy Siegel share top tips.

Research spanning the past 220 years in the stock market shows that equity investing outperforms bonds, U.S. government T-bills, gold and the U.S. dollar. The analysis is worth considering, since the report came from University of Pennsylvania Professor Jeremy Siegel, known as the “Wizard of Wharton.” Click here to watch the one-of-a-kind podcast, moderated by Mark Skousen, PhD, an economic professor and Presidential Fellow at California’s Chapman University, as well as head of the Forecasts & Strategies investment newsletter.

Mark Skousen, a scion of Ben Franklin and head of Forecasts & Strategies, meets with Paul Dykewicz.

1. Invest in Income-Producing Stocks: Seven Key Ways to Profit from Dividend-paying Equities

“In the short run, stocks are the most volatile asset class,” Siegel said. “In the long run, the stock market appears to be bullish, stable and predictable.”

Siegel’s findings gained praise from his fellow podcast speaker and scholar Burt Malkiel, an American economist, financial executive and writer of a classic finance book, “A Random Walk Down Wall Street.” Malkiel, the Chemical Bank Chairman’s Professor Emeritus of Economics at Princeton University, said, “Every time I do a new edition of ‘Random Walk,’ I ask him [Siegel] for the updated numbers. It’s absolutely right. This is the right thing for the long term. This is the asset that people should use in accumulating a retirement fund.”

Stocks Outperform Bonds, T-Bills, Gold and the U.S. Dollar: January 1802-June 2022

Source: Jeremy Siegel

Black Swan events such as bioterrorism or a nuclear holocaust might destroy the world, but “overweighting” a portfolio in equities will be the least of problems if anything like that occurs, Malkiel said.

“For an accumulator, the volatility helps one to the extent that one is a regular saver, putting in $100 a month, or a little over $20 a week… one takes advantage of dollar-cost averaging,” Malkiel said.

2. Buy Stocks With Rising Dividends: Seven Key Ways to Profit from Dividend-paying Equities

Siegel’s research showed that investing in companies with rising dividend policies is an even better strategy. Such stocks outperformed equities that did not pay dividends.

Skousen personally favors stocks that boost their dividend payouts each year. Such companies must stay disciplined to avoid high-risk projects that could squander precious capital. With management needing to preserve sufficient funds to pay a dividend, the return on investment typically is enhanced.

3. Use Dollar-cost Averaging: Seven Key Ways to Profit from Dividend-paying Equities

Malkiel advocated dollar-cost averaging, even in bear markets like the one that has lasted 30 years in Japan. Investors sometimes can profit in down markets by buying a stock index like the S&P 500 to add to their 401(k) or IRA each paycheck.

“Take advantage of dollar-cost averaging,” Malkiel counseled investors.

Dollar-cost averaging involves investing a fixed sum of money at regular intervals in index funds or other favored investments. When the prices of the assets fall, that same amount of money buys more shares than when the prices were higher. The strategy provides the most cost-effective use of one’s money by acquiring additional shares when prices drop.

4. Expect the Unexpected: Seven Key Ways to Profit from Dividend-paying Equities

Alex Green, a seasoned Wall Street investment professional, also joined in the podcast. He cautioned that a crisis can occur at unexpected times. Green stated that no one forecast the market crash of 1987, Saddam Hussein’s invasion of Kuwait in 1990, 9/11, the COVID-19 pandemic or the housing boom and bust.

Risks that lie ahead include the climate concerns, “metastasizing” federal debt, high interest rates and debt, as well as geopolitical problems with Russia and China, Green said.

“What do you say to people who lack the optimism to be a long-term equity holder?” Green asked.

To Siegel’s credit, he predicted the dot.com bust, said Mark Skousen, PhD, the podcast’s host. Skousen, who head of the Forecasts & Strategies investment newsletter, recalled visiting Malkiel in his office in 1999, reviewing a market chart together and agreeing with each other that it was time to sell stocks. The prediction proved accurate.

In January 2000, the market went nowhere, but dollar-cost averaging made an annual return of more than 5%, Malkiel said.

Of course, dollar-cost averaging is not right for people living off retirement funds and needing the money for living expenses.

5. International Exposure: Seven Key Ways to Profit from Dividend-paying Equities

Investors also should diversify their assets by holding some investments in international markets, Malkiel said. Even though Malkiel acknowledged he is mainly a U.S. investor, he personally said he exercises international diversification.

People can reduce risk by supplementing a U.S. index fund with an index fund of non-U.S. stocks. Nonetheless, equity investing beat bonds in every country, Siegel said.

America practically “worships the innovators and inventors,” Siegel opined. In contrast, Europe is basically a “value continent, and value has not done well,” he added.

Europe does not have the technology giants that have developed in the United States, Siegel said. As a result, investors seeking growth have strong reason to retain significant investments in the U.S. market.

6. Stay Humble: Seven Key Ways to Profit from Dividend-paying Equities

Be grateful for “what you have,” advised Siegel. Investors also should stay humble, he added.

Siegel said he predicted a 10-15% return in 2023 but expected the best run to occur in the later part of the year, not the first half, as occurred.

“I don’t even know what would retain value if the apocalypse came,” Siegel admitted.

7. Beware of Political Risk: Seven Key Ways to Profit from Dividend-paying Equities

Political risk has been on the rise with Russia’s continuing invasion of neighboring Ukraine and China’s increasingly contentious interactions with countries in Asia and elsewhere. Sweden cleared a huge hurdle to join NATO with Turkey agreeing to support the bid. That promise cleared the way for all 31 current NATO members to give their consent.

NATO leaders, including U.S. President Joe Biden, held an important meeting on July 12 in Lithuania. The leaders discussed continuing military support for Ukraine and a potential path to admit the country into to the alliance.

Russia’s invasion of neighboring Ukraine in February 2022 has killed thousands of people, forced millions of people to flee from their homes and left many cities in Ukraine’s east and south in ruins. It also has caused economic fallout and hurt normal trade activity of Ukraine and Russia, particularly with their imports and exports.

Russia’s persistent attacks against Ukrainian residential areas give countries like Sweden, Finland and Ukraine further reason to want to become part of NATO to gain additional military clout and serve as a deterrent to escalating foreign threats. Ukraine has launched a counteroffensive to reclaim land that Russia captured through its invasion. But counteroffensive gains on the battlefield have proven to be “slower than desired,” said Ukrainian President Volodymyr Zelensky.

Even though Russia’s forces have dug trenches and hidden land mines to stall Ukrainian forces seeking to regain land, pressure exists to quicken progress during the summer months before rainy and muddy conditions come in the fall when military progress will be daunting. So far, Ukraine defenders have done little more than test Russian forces with small strikes while seeking to detect weaknesses of its adversary.

The seven key ways to profit from dividend-paying equities offer hope for all market conditions. Despite past predictions of market drops, both investment icons cautioned that investors should avoid falling victim to hubris when short-term success is attained.

Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.