Monday, December 14, 2015

STOCK MARKET SETBACKS ARE GOOD TIMES TO BE DIVIDEND INVESTOR!

With the drop in oil prices, recent terrorist attack in California and expectations of interest rate increase from the Fed, the stock market has tumbled for the past week and this week may be even worse.  These are the times that try men's (or at least investor's) souls.  When you see steady loss in portfolio value, it's only natural to think, take the money and run.  However, for dividend investors the better course of action would be to stick with your plan.

When markets start to fall, dividend stocks fall less in value because people are more willing to hang on to stocks that pay them money on a regular basis.  Additionally, as stock prices drop, dividend yields go up and if you're reinvesting dividends, you get more shares with higher yields than you would have had prices remained steady or increased.  Lower stock prices also present buying opportunities, allowing you to get in to new stocks, or add additional shares to stocks you already own.  If you're purchasing more shares of a stock you currently hold at a lower price than your original purchase, you reduce the average cost per share of all your shares and boost the dividend yield on all shares.

So, even though we might be disappointed in not having a Santa rally this year, there are some opportunities presented by a fall in stock market prices.  The most recent drop means I'll be able to increase monthly payouts by 10% in January with my Christmas bonus investment, instead of the 9% I had originally calculated!  With less downside risk and greater upside potential from investments during a down market, I think stock market setbacks are definitely a good time to be a dividend investor.

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