The last one month has seen the stock price of the S&P 500 decline by more than 8%, and 8.22% to be exact (as of Labor Day weekend)! There are many things working AGAINST the market at this point in time – China, Oil prices, Canada officially in recession, as well as many other global crises occurring. However, and most importantly – I feel that consumer sentiment is also moving against the market, as the Michigan survey has indicated a downslide from July 2015 to August 2015. What does this stock market downturn mean for Dividend Investors? One Word. Opportunity.
Top 5 Benefits for dividend investors in a stock market downturn
With the S&P declining 8.22% over the last 30 days, this has opened up a can of opportunities for us dividend investors. We love it when Mr. Market takes a downturn and we see our favorite stocks, that we currently own or have been wanting to buy, go on sale. The S&P’s current price to earnings ratio (one of the dividend diplomat metrics in our stock screener), is currently at 19.36 and is down from the 20-21 we have seen most of this year. Also, the overall dividend yield on the top 500 currently stands at 2.17%. What does this all mean? Here is what the downturn means for us dividend investors, as I will break it down in a top 5 benefits it can bring!:
1. The overall valuations of companies are declining. We now can buy our favorite companies at a discount aka less than the price we originally bought them OR at a price we have been waiting for them to be at. A great example is my additional purchase of 10 shares into JNJ, as it dropped almost 7% from the last price point that I purchased them at! Similarly, Bert never had a position in 3M (MMM) and boom, HUGE position he just created, as the market allowed a valuation opportunity for him. Bottomline – companies are on sale, and I hope you have your watch/shopping list ready!
2. More dividend income. You now can buy more dividend income for the capital you are using to make that purchase. Example – if I bought those same 10 shares of JNJ at $100/share it would have cost me $1000 to buy $30 in forward dividend income. With the price turning down, that same $30 cost me $917.50 before fees. You are able to buy more income for less. Vice Versa – if you wanted to spend $1,000 anyways, that could have purchased 10.90 shares and added $32.70 to your forward income. Purchasing power has just increased!
3. Have Capital Ready. Yes, I know, I know it’s hard – I mean come on, you are talking to someone who was running on thin ice and is constantly running on the same sheet day after day. You don’t have to make sudden purchases when you see a “bunch of” red during the market downturn – though it is nice. Obviously we cannot predict where the market is going and you should make consistent purchases as you see fit for your style and portfolio. Having capital ready for this market downturn is key, so lets all try to be ready to buy more dividend income for less at better valuations than they had earlier.
4. Dividend Reinvestment just became a lot more fun. You know that one of our firsts posts circled around the dividend reinvestment or DRIP. Well, now this is where it gets even more fun, especially being in the month of September that we are in, as it traditionally is a big dividend paying month. Why is this a lot more fun? Easy and simple – our dividends are being reinvested at a better price than the last year or two years before – and we are then, as the first few bullet points state, picking up more dividend income with our reinvestment at a point where valuations are better and that can be a great source/use of capital from dividends paying this month. Whew, out of breath saying that. This is where fun clock work is for me. Essentially if I had $1,000 in dividend income this month with reinvestment on – it takes care of my investing for me, fee-free, and at an average yield of my portfolio at approximately 4% – would then add $40 in forward income for me this month ALONE. Now if my yield because prices were higher and it was at 3% – only $30 would have been added. I love this, this is fun!
5. Hitting your goals set for the year – on the dividend income front. This just also became easier. You now have a more robust path to your dividend investing goals for the year. My goal is $6,750 by 12/31 going forward in dividend income. With the downturn – this allows me to keep capital ready, buy my watch list stocks when they are at better valuations and I can buy more dividend income for less money. Additionally, I still have 4 full months of reinvestment to occur, and if September may bring $40+ alone added to my forward dividend income, I will have another 3 solid months of dividend reinvestment to add to my forward income as well! I seriously love the clock work as a dividend reinvestment investor!
Phew… now that was a lot of writing, I know, so bear with me. What does this all really mean? This is opportunity. This is opportunity for us to reach our goals, make better use of our cash & capital that we have and truly “feel” the benefits even further of being a dividend income investor. Whether if you DRIP your dividends when they come in or you keep them in cash to make one single purchase – these lower prices are providing great opportunity to reach those goals in a more efficient & effective manner. It’s the wonderful clockwork as a dividend income investor, and that’s all I can really say. Actually – Thank YOU stock market for taking a slide and opening up doors for us!
Thoughts on these top 5 benefits? What more could you see? Are you buying or sacking cash away to make bigger purchases during this time? Please share!