Dividend stocks could become increasingly popular among income-seeking investors over the coming years. Low interest rates may mean they offer the most attractive return profile among mainstream income-producing assets.
Therefore, buying a selection of dividend stocks while they’re cheap could be a sound move. Although the recent market crash may or may not yet be over, the prospect of a long-term market rally may mean dividend stocks offer strong capital returns in the coming years that helps you to retire early.
Low interest rates
The uncertain outlook for the world economy could mean interest rates experience a prolonged period at low levels. This may help to support the economy while it faces an unprecedented crisis. But it leaves income-seeking investors with a lack of choice when it comes to generating a return from their capital.
For example, mainstream income-producing assets, such as cash and bonds, may become relatively unpopular. They may fail to offer an inflation-beating return over the next few years. This could increase demand for dividend stocks. That’s because many companies now offer relatively high yields following the recent stock market crash.
Certainly, there’s scope for dividends to be cut across many sectors where sales and profitability have come under pressure. But a number of companies and industries have reported solid financial performances of late. As such, their shares may experience increasing demand from investors. Especially if they’re able to increase dividends at an above-inflation pace.
This could lead to a rise in dividend stocks prices to complement their attractive income returns over the long run, which may boost your portfolio returns.
Stock market recovery
The stock market’s long-term prospects appear to be relatively bright. A sustained recovery may seem unlikely at present. Risks, such as the potential for a second wave of coronavirus later in the year, as well as geopolitical challenges concerning the US and China, are constant concerns.
However, stock market recoveries seemed unlikely during previous crisis. And, while they can sometimes take a number of years to materialise, long-term investors who are building a nest egg for retirement are likely to have sufficient time to benefit from them. As such, equities appear to offer the most obvious means of generating an attractive total return over the long run.
Increasing popularity of dividend stocks
Dividend stocks could be relatively popular during a market recovery. Not only for their income prospects, but also because a growing dividend suggests financial strength and confidence among a company’s management team regarding its growth potential. Investors may view a company with the financial strength to maintain its growing dividend in a more positive light relative to its peers.
This may increase demand for its shares and lead to a higher stock price, which boosts your chances of retiring early.