Dividends Are Your Best Friend For This Downturn

It’s a giant leap from having your money handled by a professional money manager to following the ETF recommendations from your company’s 401k provider and making your own investment decisions.

How stocks, bonds, and funds work is complicated, and decisions about what to invest in have consequences.

When stock prices rise, it’s easy to feel like you have it all under control and are a great investor. Then we hit a bear market like the one we are in now – in which stocks are down 20%, 30%, or even much more – and investors start to question whether they should be in the markets and whether they will lose their nest egg if they stay.

My Dividend Hunter strategy avoids much of this. But people still ask me questions.

So today, let’s set the record straight on why income investing is perfect for bear markets like this one…

Look, most people – through no fault of their own – simply lack knowledge about investing in the stock market. I have 40 years of investing experience, including getting a stockbroker’s license, becoming a Certified Financial Planner, attendance at numerous training classes, and being a glutton for reading about investments. I want to know how an investment works before I put any money to work in that stock.

My Dividend Hunter strategy invests in high-yield stocks and other investments with the goal of building a stable income stream. Because we invest in the stock market, the investments are not immune to the market’s upward and downward swings.

Investors new to the high-yield dividends strategy have been sending me questions along the lines of: “The share price of this stock is down a lot. Does that mean the dividend will be cut?”

The quick answer is NO! Dividend rates, the dividend paid per share, are set by the company and depend on the company’s profits and losses.

They are not set based on the share price. Investors often don’t understand that how much money a company brings in, and how much it spends, are not tied to share prices.

Most dividend-paying companies are very aware investors count on dividends and do all they can to keep dividend rates steady. And if business is good, you will see companies grow their dividend rates, even through the downturns.

As an income investor, you don’t get to time the markets. If you sell your shares, you stop the dividend stream. The other side is that your income will stay steady through a bear market, and if you buy shares when they are down, you will grow your income even faster and build your wealth higher when the market recovers. (It always recovers.)

Let’s close with a stock idea. W.P. Carey (WPC) is a net-lease real estate investment trust (REIT). The WPC dividend has increased every quarter since 2001. There have been serious stock market crashes over those 21 years, yet the WPC dividend kept paying and growing. That’s just one of the bear market income generators in my Dividend Hunter portfolio.

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Disclaimer: The information contained in this article is neither an offer nor a recommendation to buy or sell any security, options on equities, or cryptocurrency. Investors Alley Corp. and its ...

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