Don’t Panic: Market Corrections Are an Opportunity in Disguise

Don’t panic during the market correction. Buy Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), Enbridge Inc. (TSX:ENB)(NYSE:ENB), and Canadian National Railway Company (TSX:CNR)(NYSE:CNI).

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It’s official. We are in correction territory. Chinese shares have erased all of the year’s gains. Dow futures dropped more than 600 points last week. And today, it dropped 1,000 points when the market opened. The natural, human response is to panic because your stock is losing value. But I would implore you, as a smart investor, not to panic.

What separates the smart investor from the average investor is your sentiment when a market correction occurs. The average investor freaks and starts selling, figuring that their money is lost forever. The smart investor knows that they still own shares in great businesses that are going to continue to reward them.

But here’s where the opportunity comes in: because everyone else is selling their stock, the prices are plummeting. If you are sitting on cash right now, there’s a good chance you can find some great companies that will make your portfolio feel much stronger. The philosophy I subscribe to is Warren Buffett’s: “When there is greed, be fearful. When there is fear, be greedy.” Therefore, you can bet Buffett is planning to buy stock right now, and you should be, too.

My advice, though, is to focus on businesses that pay dividends. The reason is because you’re buying in when the yield is higher, which allows you to accrue a greater amount of shares and more dividends per quarter. If you reinvest this money, you’ll be able to continue buying further shares much faster.

Three companies that I would recommend buying right now are Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), Enbridge Inc. (TSX:ENB)(NYSE:ENB), and Canadian National Railway Company (TSX:CNR)(NYSE:CNI). The reason is because these are all necessary companies that have solid fundamentals.

Bank of Nova Scotia pays a 5.14% yield and that’s definitely going to go higher as the price of the stock drops even further. That comes out to $2.14 a year in dividends that you can then reinvest into more shares of the company. And the thing is, Bank of Nova Scotia has diversified revenue sources, so this dividend is safe. It’s not going to get cut.

Enbridge pays a 3.76% yield, which will only go up. That comes out to $1.86 per share per year. Even with oil prices where they are, the companies still need to get oil from point A to point B. Enbridge is price agnostic, so it can still generate significant revenue even with a market correction and low oil prices. It’s not going to get cut.

And Canadian National Railway, while it only pays 1.78%, is still a very solid dividend to have in your portfolio. That’s $1.27 per share per year. Similar to Enbridge, this company is going to continue shipping goods around Canada and the United States irrespective of a market correction. People still need goods. The dividend is not going to get cut.

Don’t sell when others are selling

The reality is simple: when others are selling, you should not be following them. You are going to lose money that way and that’s not what we want to achieve. When there is fear, stick to your investments. If they are like the companies I mentioned above, they are solid investments and won’t have their dividends cut. Market corrections happen; dividends are your way to keep your portfolio strong.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

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