The near-zero level of short-term U.S. interest rates is forcing investors to search outside of plain-vanilla bonds for yield, and market guru Marc Faber thinks dividend stocks will be a beneficiary.
"I think the difficulty is what to do with money when interest rates are essentially at zero on the U.S. dollar,” Faber, editor of the Gloom Boom & Doom Report, told CNBC.
“Then obviously people look at their portfolios, and they see stocks that have dividend yields. In Singapore, Thailand, Malaysia, you can have stocks yielding 5 percent. So, the money flows essentially into these stocks."
Stocks overall will stay in a trading range, he predicts. “They may go down some more into October and November and then rally going into end of the year,” Faber said.
The Standard & Poor’s 500 Index has strong support at 1,010, about 10 percent below its current reading, but that doesn’t guarantee that this level won’t be broken, he says.
“The economy isn’t doing well, and it’s very likely there will be more monetary easing and stimulus packages,” Faber said.
“I’m not sure the stock market will take that well. That’s why I tell people they should have some money in physical gold.”
As for dividends, David Bianco, a stock strategist at Bank of America, suggests in a report obtained by Bloomberg that the government eliminate the tax on dividends while increasing the capital-gains tax rate to 20 percent.
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