Buying dividend stocks that have fallen in price during the recent market crash could be viewed as a risky move by some investors. Their prices may move lower in the short run depending on how news regarding coronavirus progresses.
However, many dividend stocks now offer high yields that could catalyse your portfolio's performance. Furthermore, they may offer capital growth potential as the world economy recovers. This may increase your chances of making a million in the long run.
High yields
Many income stocks now offer high dividend yields that are in excess of their historic averages. In some cases, their dividends may be unreliable due to uncertain operating conditions within their respective industries. However, some dividends appear to be relatively resilient and may be paid as usual over the coming months.
Buying a selection of dividend shares is not only worthwhile for income-seeking investors. The past performance of the stock market shows that a large proportion of its total returns have been derived from the reinvestment of dividends. As such, for investors who are seeking to generate a seven-figure nest egg in the long run, buying high-yielding stocks today could prove to be a highly profitable move.
Capital growth
Low interest rates look set to remain in place over the medium term. Policymakers may be concerned about the prospects for the economy, which could lead to them adopting a supportive monetary policy for many months.
This may cause the returns on income-producing assets such as cash and bonds to remain at highly unattractive levels for some time. The end result could be that investor demand for high-yielding dividend stocks is high, which may lead to them producing impressive levels of capital growth.
Furthermore, in many cases high yields indicate that stocks offer good value for money. Therefore, through buying equities when they are cheap, investors may be able to profit from their eventual recovery over the long run.
Recovery prospects
While a recovery for any stock is not guaranteed, the track record of the stock market suggests that it is highly likely over the long run. Previous bear markets and economic recessions have been exceptionally painful for many investors, businesses and consumers at the time. However, global GDP growth has always recovered, and the stock market has always gone on to produce new record highs through a bull market.
In the coming years, an economic recovery seems likely. Fiscal and monetary policy stimulus has already been announced, and this could produce rising asset prices. As such, buying a selection of income stocks today could be a means of capitalising on the recovery potential for global equities. It could improve your long-term financial prospects, and increase your chances of building a portfolio valued at over a million.
