My Santa Wishlist: Juicy, Fully Franked Dividends

What a start to the week!

The ASX lost 2 per cent during Monday’s session, ending the day 100 points lower.

It was actually the fifth consecutive day the S&P/ASX 200 (ASX: XJO) closed in the red, losing a total of 4.4 per cent in that time.

Hardly the so-called ‘Santa rally’ investors had been hoping for…

Typically, company and market news quietens down around this time of year.

Corporations get ready to close their doors as workers hang up their suits and ties for the calendar year, ready to see what Santa Claus brings on December 25.

But instead of bearing gifts, the fat man with the white beard has been pegged up against the U.S. Federal Reserve’s chair, Janet Yellen, in the build-up to what will likely be the first interest rate hike since 2006.

Their pain is our opportunity

In response to the harsh sell-off, one commenter on The Sydney Morning Herald’s‘ ‘Markets Live’ feature even noted that:

Santa has sent out an urgent request for lots of green fodder to give to the poor starving bulls. He has enough coal for the usual suspects so green only.”

There’s no denying the facts: it’s been a pretty bland calendar year for most local investors.

From the banks and miners to Woolworths Limited (ASX: WOW) and Telstra Corporation Ltd (ASX: TLS), many of Australia’s blue chip companies have delivered nothing but grief in 2015.

The ASX itself looks almost certain to book an annual decline for the first time since 2011 and there are fears it could get even worse before the year is through.

To be clear though, here at The Motley Fool, we don’t usually pay too much attention to short-term volatility.

We accept that it naturally occurs in the market, from time to time, scaring lots of short-term traders from their positions.

That means cheaper shares for us, and bigger dividend yields. More on that in a moment…

But first, what is the market so worried about right now?

Well, first on the agenda seems to be what Janet Yellen and her fellow U.S. Federal Reserve officials decide about the future of interest rates in the world’s biggest economy.

Admittedly, there are no certainties when it comes to investing or the economy, but it’s pretty close to it this time…

The CME Group FedWatch tool, which measures the market’s views regarding U.S. monetary policy, says there’s an 83.3 per cent chance the Fed will hike interest rates this week.

You might as well lock it in…

Of course, the market has had plenty of time to adjust to the idea, but there are now fears of what could happen afterwards.

For instance, is the United States actually ready for a rate hike? How about the global economy?

Let’s make one thing very clear. Interest rates near zero per cent can’t last forever. A rate hike is eventually inevitable and there are strong signs to suggest the U.S. economy is ready for the move now.

Another thing to be clear on is interest rates will likely still remain low for some time, regardless of whether they rise on Wednesday (Thursday morning, our time).

For now, it’s just a matter of getting the ball rolling.

While investors are fretting about U.S. interest rates, there’s also the concern regarding global commodity prices.

The iron ore price is languishing below US$40 a tonne, as are oil prices. There’s no telling whether both will continue to drop, or how far, and that makes the resources sector especially risky right now.

Perhaps BHP Billiton Limited (ASX: BHP) is the best example of this.

The miner’s share price fell to a new 10-year low of just $16.57 during yesterday’s session. That’s down from $27.50 per share at the start of the year and reflects the damage being inflicted on the broader sector.

You couldn’t tempt me into buying its shares – not yet, anyway.

All things considered, the ASX 200 is now sitting near its lowest level in two years. It’s below 5000 points and most short-term investors are likely on edge.

But that’s where we come in

Rather than fretting over short-term price movements and overnight losses, we subscribe more to long-term opportunities.

The fact is, there is no way of knowing what’s going to happen this afternoon, this week, month or even next year.

The market could have further to fall, or it could be set for a magnificent rebound.

According to The Australian Financial Review, Credit Suisse even thinks it will hit 6000 points by this time next year!

I hope they’re right, and it’s certainly a feasible target. But whether it goes up or down, it’s likely going to be a bumpy ride.

And that’s okay! Because volatility is the cost of investing in the share market.

It’s what allows us to earn outsized profits when the market’s in a good mood, and allows us to pick up high-quality companies at cheaper prices when others in the market aren’t so confident.

Or as my colleague Andrew Page said recently:

The tenets of great investing are simple. We find quality businesses. We buy them at reasonable prices. We hold for the long term. Period.”

Andrew is the lead advisor for Motley Fool Dividend Investor, a service that is handily outperforming the broader market since its time of inception.

While this falling share market could put a temporary strain on share prices, history suggests it will benefit those who start buying while prices are lower.

That’s especially the case for fully franked dividend investors

You see, dividend yields move in the opposite direction to share prices.

They’re inversely correlated, so when the share price falls, the dividend yield rises (all other things being equal).

Although the U.S. Federal Reserve might be on the verge of hiking interest rates, Australia’s own cash rate is likely to remain low for many years.

Heck, it might even fall below its current low of 2 per cent!

That makes dividend shares particularly attractive today.

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