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Why ASX investors should cheer on the correction

The ASX has officially entered correction territory, falling 10% off its peak just weeks ago. The accompanying news stories speak of spooked investors going to cash — some commentators are perhaps getting a bit ahead of themselves as well, already announcing the beginning of a prolonged bear market.

No one likes to see his or her investments going into the red. But to panic is a mistake, perhaps a costly one.

Why? Because, speaking generally, if you buy stocks, you’ll be paying lower prices. If you’re going to be a net buyer of stocks in the future, “you are hurt when stocks rise” but “you benefit when stocks swoon” as Warren Buffett has said.

For Australians who’ve been looking for greater returns on their cash than are currently offered in term deposits, the pickings are improving. When stocks get caught up in one of the market’s periodic bouts of pessimism, share prices sink while dividend yields rise. You pay less, but may receive more. Buying high quality companies like Woolworths (ASX: WOW) or Wesfarmers (ASX: WES) can become more attractive, as yields rise and dollar-cost averaging turns in your favour.

Consider Telstra (ASX: TLS), with its 28-cent fully franked dividend, representing a 6% dividend yield at today’s price. With a built-in return of 6%, investors are already soundly beating inflation and term deposit rates and are on the way to a market-beating return.

No less than The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Catherine Baab-Muguira owns no shares in the companies mentioned in this article.

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