Dividend-paying equities make sense over the long term. There's a lot of evidence that, if you have that position in dividend-paying stocks, they outperform over the long term. They also have done very well in periods when the broader market was not doing as well. So I think as a theme this is one of those themes like value that investors may want to consider having a permanent tilt towards.
Now, there's a caveat. The caveat is that many parts of the U.S. market that are known for dividends -- utility companies, REITs, for example, are very expensive right now. And there's no mystery why they're expensive. They're expensive because people have been favoring these companies for the last five years because interest rates have been so low. So I think the dividend theme makes sense, but investors want to think about how do you gain access to that theme?
So here are two ideas. First of all, energy companies. Not typically thought of as a dividend play, but large, integrated multinational energy companies actually offer a relatively good yield of around 3.0-3.5 percent. So that's one place to look. The second place, look outside of the U.S. We've used the phrase again and again: "Cast a wider net." Think about international dividend funds or international dividend ETFs, the reason being that in many cases -- in Europe, in parts of developed Asia -- you can get a higher yield at a lower price once you leave the United States.
Related by Topic: Economic Outlook , Equities
Given a backdrop of soft earnings and high valuations, BlackRock Chief Investment Strategist Russ Koesterich discusses why he would not abandon stocks, but instead tilt towards sectors and geographies offering relative value.