Why a Falling Market Is the Best Time to Shop for Dividends

A growing dividend and a falling price is a powerful combination. You can buy ATCO Ltd. (TSX:ACO.X) for 60% more income and Royal Bank of Canada (TSX:RY)(NYSE:RY) for 18% more income than a year ago.

| More on:
The Motley Fool

Some investors dislike falling stock prices. This would especially be the case for speculative investors looking for quick gains in the market. However, for dividend investors who are looking for secure, regular income, a falling market is good news.

A falling market implies lower stock prices. In turn, lower stock prices imply higher yields. Higher yields imply more income for dividend investors going forward if they invest in quality, blue-chip dividend stocks at lower prices.

A falling price and a growing dividend is a powerful combination that increases income for dividend investors who buy shares in dividend-growth stocks such as Royal Bank of Canada (TSX:RY)(NYSE:RY) and ATCO Ltd. (TSX:ACO.X).

Royal Bank of Canada

One year ago, dividend investors would have found Royal Bank at about $75 per share with a quarterly dividend of 75 cents, which equated to a 4% yield.

Today, as Royal Bank’s share price falls with the market, it now yields 4.7% at $67. In the one-year period, its quarterly dividend has increased by four cents per share (to 79 cents)–annual growth of 5.3%.

If you owned 100 shares a year ago, you would have had an annual income projection of $300. Today, you’d enjoy $316 of annual income. Further, according to Royal Bank’s usual dividend-growth schedule for the past few years, it should be increasing its dividend next quarter.

If you buy 100 shares today, you’ll get a stake in the indisputable Canadian bank leader at a cheaper price and higher yield than it had a year ago. Specifically, you’ll get a discount of almost 11% on the shares and almost 18% more income.

ATCO Ltd.

One year ago, dividend investors would have found ATCO at about $49 per share with a quarterly dividend of 24.75 cents, which equated to a 2% yield.

Today, as ATCO’s share price falls with the market, it now yields 3.2% at under $36. In the one-year period, its quarterly dividend has increased by 3.75 cents per share (to 28.5 cents)–annual growth of 15.1%.

If you owned 100 shares a year ago, you would have had an annual income projection of $99. Today, you’d enjoy $114 of annual income. For a diversified utility that has increased its dividend for 22 consecutive years and has a payout ratio of less than 38%, investors can depend on its dividend to continue growing in the future.

If you buy 100 shares today, you’ll get a stake in a stable utility at a cheaper price and higher yield than it had a year ago. Specifically, you’ll get a discount of over 26% on the shares and 60% more income.

Conclusion

Investors looking for a regular income should welcome falling prices, which create opportunities for income investors to shop for blue-chip dividend stocks, such as Royal Bank and ATCO, which have strong histories of paying dividends.

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 Kay Ng owns shares of ATCO LTD., CL.I, NV and Royal Bank of Canada (USA).

More on Dividend Stocks