The best investment strategy right now is to buy high-quality stocks that pay dividends and stay invested long-term to reap the benefits of compounding, Harry “Hersh” Cohen, senior portfolio manager of Clearbridge Advisors, told CNBC Monday.
Cohen, overseeing about $8 billion at Clearbridge, is
often asked for advice from clients: “Two years ago,
every call I was getting was from people saying I have a
[Certificate of Deposit] expiring, or a Treasury bill; but
where can I get higher returns with no risk? You can't, I
would tell them. There is no such place.”
Since then, Cohen has changed his tune.
“High quality stocks started to offer dividend yields higher than they had been in years, higher than in bonds,” he said. “So, it seemed to be the place to go.”
Skeptics hear the “dividend play,” and argue that the trade is overcrowded, which lowers the overall return. Cohen counters, saying investors can ignore the crowds if they're in it for the long haul.
He adds that now couldn't be a better time to following the strategy, with the Federal Reserveannouncing that interest rates are likely to remain near record lows for the next several years.
“(Fed Chairman Ben) Bernanke is definitely forcing people out of the risk curve,” said Cohen. “He's trying his best to re-flate the economy.”
Cohen highlights the Fed's actions, because if they boost
economic growth, it follows that companies' stock prices, and
their ability to pay dividends, also get a lift.
Clearbridge's top five equity holdings include Exxon Mobil, Procter & Gamble, Waste Management, Microsoft , and Kimberly-Clark.
“If you're thinking about the next three months? Who knows. But if you're thinking about the next five, 10, 20 years, I can tell you from experience that stocks actually work and dividends actually work,” Cohen said.
Over the long term, high-quality stocks reap the benefits of compounding — generating earnings from re-invested, previous earnings.
“There are so many great companies that do all the
right things for shareholders,” he said. “It's
not a new idea, but I think people would benefit from
focussing on it.”
Additional News: Tonen Buys 99% of Exxon Mobil's
Additional Views: Stocks Are Cheap, Go for Dividends
CNBC Data Pages:
Hersch Cohen owns stock in Exxon Mobil, Procter
& Gamble, Waste Management, Microsoft, and
Kimberly-Clark, through Clearbridge Advisors' managed
account, called the “dividend strategy”