3 Reasons Why the Market Crash Could be a Dividend Stock Buying Opportunity

The stock market’s fall could present opportunities for income investors.

The stock market crash of 2020 could prove to be an excellent buying opportunity for long-term income investors.

Certainly, it is likely to cause a significant amount of disruption and challenging operating conditions across many sectors. But it has also pushed yields higher and valuations lower across a wide range of industries.

With the stock market having a solid track record of recovery from even its very worst bear markets, now could be the right time to buy income stocks and hold them over the coming years.

High yields

Perhaps the first thing that income investors look for in a stock is its yield. At the present time, a number of high-quality businesses have exceptionally high yields compared to their historic levels. This could enable you to capitalise on the stock market’s decline to boost your passive income.

Relative to other assets, income stocks appear to have significant appeal. Low interest rates, and the potential for them to fall further as policymakers seek to boost the macroeconomic outlook, may mean that holding cash and bonds becomes even less attractive from an income perspective. They may offer below-inflation returns, while a portfolio of stocks could maximise the income you receive from your capital.

Low valuations

The valuations of a range of companies suggest that they offer capital growth potential. This may not be your priority as an income investor. But being able to build a portfolio which grows in size over the coming years may prove you with an easier task of generating a passive income from which to live in retirement.

Furthermore, if you are not yet retired and are seeking to build a nest egg for older age, now could be an excellent opportunity to buy high-quality stocks while they offer wide margins of safety. History shows that adopting such a strategy can lead to high returns in the long run, although there is a risk of ongoing declines in stock prices in the near term. Therefore, diversifying across a wide range of businesses that operate in different sectors is likely to be a shrewd move.

Recovery potential

Another reason to buy dividend stocks today is their potential to recover. This not only means their prospect of recording stock price growth, but also enjoying a return to more stable operating conditions.

The world economy has faced numerous crises in its history. They range from financial crises to oil shocks, and from asset bubbles to geopolitical challenges. In each case the global economy has experienced a period of time where growth has been negative. While painful for investors, the world economy has always gone on to post strong growth in the years following its range of crises.

At the present time, that outcome may seem unlikely. But, through adopting a long-term focus, you can capitalise on high yields, low valuations and the world economy’s recovery potential.

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.

More on Dividend Stocks

man shops in a drugstore
Dividend Stocks

1 Dividend Stock to Buy if the CRA Tightens TFSA Rules

If there's one thing we all need, it's food. And that's why this dividend stock is a perfect investment.

Read more »

space ship model takes off
Dividend Stocks

2 Canadian Stocks That Could Sky Rocket With a Rate Cut

Having trouble sleeping at night over your investments? Then consider these two for a passive income portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

This 7% Monthly Dividend Stock Could Be Your Secret to Early Retirement

Listen up, you could have an early retirement with this monthly dividend stock, and consistency!

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

This 7.1% Monthly Payer Could Save Any TFSA During Market Chaos

With markets acting out of control, this dividend stock is in a prime position.

Read more »

A meter measures energy use.
Dividend Stocks

Buy the Dip: 1 Utility Stock That’s a Steal After Dropping 22%

This utility stock has had a wild ride, but now might be the time to consider it once again.

Read more »

shopper chooses vegetables at grocery store
Dividend Stocks

How Much to Invest in Slate Grocery REIT for $2,000 in Tax-Free Income?

Do you want income that lasts? Here's how much you would need to pay for that -- it's less than…

Read more »

senior man smiles next to a light-filled window
Dividend Stocks

The CRA Audit Triggers Every Pension Recipient Should Know

If you hold dividend stocks like Fortis Inc (TSX:FTS), you need to report the income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

2 TSX Dividend Stocks to Own for TFSA Passive Income

These top TSX dividend stocks have increased their distributions annually for decades.

Read more »