Many dividend stocks have experienced difficult trading conditions over recent months. Covid-19 is an unprecedented crisis that has produced a challenging outlook for a wide range of businesses. This may dissuade many investors from buying high-quality companies at the present time.
However, rising demand for income shares due to low interest rates and a probable economic recovery suggest that now could be the right time to purchase a diverse range of dividend stocks. They could produce high total returns that make you a fortune over the next 10 years.
Rising demand for dividend stocks
Demand for dividend stocks may not be especially high at the present time. After all, risks such as trade tensions between the US and China, as well as the prospect of a second wave of coronavirus, could cause difficult trading conditions for many industries and businesses.
However, companies that maintain shareholder payouts in the medium term may experience high demand from income-seeking investors. They are unlikely to have a great deal of alternative options available in an era where low interest rates are set to remain in place. For example, investors who would have relied on bonds or even cash in the past to generate a positive real income may focus their capital on dividend shares in the coming years.
Rising demand for income stocks could mean that their prices rise. As such, as well as their income opportunities, they may produce high capital returns that boost your portfolio’s prospects in the next decade.
Economic recovery
Buying dividend stocks while an economic recovery is uncertain could be a sound move. At the present time, weak GDP growth could cause many investors to doubt the capacity of the global economy to bounce back from its recent difficulties. This is an understandable view, and is often present during bear markets and recessions.
However, the past performance of the world economy shows that it has always recovered to produce improving growth after even its most severe difficulties. This time, major stimulus packages have been announced across many large economies such as the US and in Europe. They could catalyse the trading conditions for a wide range of companies that leads to rising profitability and a greater capacity to pay improving dividends in the coming years.
Capitalising on a recovery
Since it is difficult to ascertain which industries will produce the quickest and strongest recovery from present economic challenges, buying a diverse range of dividend stocks could be a shrewd move. By spreading the risk across a number of companies, you can limit your exposure to a concentrated few businesses and benefit from the likely growth of the wider economy. This strategy could boost your portfolio’s performance and improve your financial position over the next decade.