Buying dividend stocks in the current economic climate may not appear to be a worthwhile move for many investors. They may feel that further stock market declines are ahead. And the value of their portfolio could come under severe pressure.
However, over the long run, many dividend stocks that have recently crashed could deliver strong recoveries. As such, it may be worth buying a selection of them now while they offer good value for money. This strategy could improve your financial outlook. Indeed, it can help to bring your retirement date a step closer.
Value for money
Buying stocks while they offer good value for money has been a highly successful investment strategy in the past. Following it at the present time could prove to be a shrewd move. That’s because a number of high-quality dividend stocks appear to be trading on valuations lower than their historic averages.
Certainly, a challenging economic outlook could cause their prices to move even lower in the short run. But, the past performance of the stock market shows they’re unlikely to remain at depressed prices over the long run. In fact, the stock market has always recovered from its various bear markets to move to higher price levels than those achieved in its previous bull market.
Therefore, purchasing high-quality companies that have the potential to pay growing dividends could lead to a substantial retirement nest egg in the coming years.
Relative appeal
Demand for dividend stocks may not be especially high at present among income investors. Significant risks are facing the world economy that may disrupt operating environments across a wide range of industries.
However, over time, the popularity of dividend stocks could increase significantly. It’s becoming increasingly difficult to generate a worthwhile income return from other mainstream assets, such as cash and bonds. Policymakers are likely to maintain a supportive monetary policy stance even as the economy recovers through policies such as low interest rates. So demand for income-paying stocks could increase.
This may help to push the prices of dividend stocks higher in the coming years. The end result could be a larger retirement nest egg that makes it easier for you to generate a generous passive income in older age.
Focusing on quality dividend stocks
At the present time, many industries are experiencing significant change. This may persist over the next few years, as consumer habits are potentially altered by the unprecedented coronavirus pandemic.
Therefore, diversifying across a range of dividend stocks could be a logical move. It will enable you to reduce your overall risk at a time when it’s unclear exactly which sectors will deliver strong performances in the long run.
This strategy could also boost your returns and provide a more resilient passive income that helps you to achieve retirement status earlier than expected.