Top 5 Benefits for Dividend Investors in a Stock Market Downturn

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!

Conclusion

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!

-Lanny

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22 thoughts on “Top 5 Benefits for Dividend Investors in a Stock Market Downturn

  1. Here in the UK, we have a similar situation. Stocks are on sale! I’m just trying to save up as much extra capital as possible for my monthly regular purchase.

    Looking forward to writing my September FTSE350 stock watch list and whittling down my choices

    Cheers!

    • M,

      Thanks for the post! Hard position when you want to buy so much with limited capital – I feel your pain!

      Good idea with the watch list – widdle down the choices and BOOM make that decision – keep us posted and good luck!

      -Lanny

  2. Lanny – Great post and great reasons to be a dividend stock investor. With 17 total buys, our family certainly took advantage of the downturn this past month. Can’t wait for the dividends to start rolling in from those purchases. We hope to continue buying shares and boost our forward dividends on the cheap and with higher dividend yields this coming month. There are still a lot of great deals out there but I’m secretively hoping for a few more bad days ahead. 🙂

    Cheers to sale prices and hoping everyone has an opportunity to grab a piece of that pie! AFFJ

    • AFFJ,

      Thanks for coming by. Yes – you and your family went on a TEAR, for lack of better words. Just went outlet shopping essentially. Those dividends – the fruit will be soon, quick and plentiful – In awe for sure.

      Keep us posted – I know we’ll be reading some great purchase articles from you. Thanks again, talk soon!

      -Lanny

  3. The market declining is a great time for all investors with a long-term focus, not just dividend investors. I am still mainly a passive indexer but love whenever there are pullbacks because I can pick up some additional shares at great prices! If you don’t freak out when you see red, you have the chance to reap the benefits of the markets going on sale!

    • IPD,

      Thank you very much for coming by. It is great for long term investors, hands down and can’t argue with that. Even if you are an index investor – they have come down as well, the dollar cost average on high quality can provide great results down the road. Consistency, time, patience is key.

      -Lanny

    • FTFF,

      Thanks for the stop by. I think I have the same problems – want these prices to stay down – especially in the bigger months like September for dividends and not having the “right” amount of capital to deploy is always a challenge. It’s okay though, as long as I’m consistency and still making purchases in the downturn when/where/how I can is all that matters. Thanks – wish the market slid today though!

      -Lanny

  4. I agree to buy when things are on sale. it makes perfect sense to me. Many people don’t understand this concept. I am looking to buy a position in PG and EMR with prices currently at lower levels.

    • EL,

      Love those 2 stocks you mentioned – those exact two were actually VERY high on my radar… great minds think alike, eh? Keep us posted and we’ll do the same, though the increase in the market got me frustrated!

      -Lanny

    • Tawcan,

      Wish so bad we had more capital. I think as long as we are “sticking” to our traditional purchasing habits – then we are getting a piece of this value. But if we can do any extra purchasing during these times – then that would be the icing. Consistency is going to be a broken record, er, word in my book! Let’s keep the focus hat on.

      -Lanny

  5. Lanny,
    I agree 100%. Though length of time in the game is more important, it is still extra nice to get things on sale in any form. I’m going to be acquiring them anyway, why not pile on a few more shares of this or that?
    Also I was in your and Bert’s neighborhood last week. I had a crazy work trip through Ohio – hit all the big cities – Columbus, Cleveland, Cincinnati, Akron, Canton, Youngstown, Toledo – and a bunch more in between. I hit them + part of Indiana in less than 4 days, so it was a bit all over the place.
    – Gremlin

    • Gremlin,

      Time in the game is DAMN important. It’s being consistent in your methods though as well – such as – making continuous purchases no matter what aka taking advantage when the prices swing this low. Why not pile a few more shares – like the sound of that.

      No way — you were in Akron and Cleveland??!?!? What parts? I was born and raised in the Akron area but have lived in Cleveland-area for 4+ years now. You’ll have to fill me in, I’m pumped to hear!

      -Lanny

  6. As much as I agree with the word opportunity and your whole post, I think dividend investors should also still look for high quality and long term dividend growth. Buying at discount is enticing but there could be some danger in buying only by looking at what is going on in the last months. Dividend Growth Investing works at its best in a long term strategy.

    Cheers!

    Mike

    • Mike,

      Agree with you as well – as long as there is no fundamental change to the company you are buying – then fo rsure, scoop them up. If their growth and earnings look bland, downtrend, management is not working out – then steer away. Thanks for the post Mike, always appreciate your insight!

      -Lanny

  7. The nice thing about dividend stocks is that they tend to be big, blue chip companies. Their stock prices don’t fluctuate as much as the overall market, so dividend portfolios don’t get killed in bear markets.

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  10. I know this post is from 2015, but Top 5 Benefits for Dividend Investors in a Stock Market Downturn is a “must read” for any new stock market investor.

    It’s also a great reminder for experienced investors as well.

    People need to remember that stocks can go up, sideways or…down.

    It’s very comforting to get paid dividends in each of those 3 scenarios.

    I just shared this post on twitter.

    Keep up the great work at DividendDiplomats!

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