Buying dividend stocks in the current economic climate may not appear to be a worthwhile move for many investors. However, over the long run, many dividend stocks that have recently crashed could deliver strong recoveries. As such, it may be worth buying a selection while they offer value for money. This strategy could improve your financial outlook, and help you to retire early.
Value for money
Buying stocks while they offer good value for money has been a highly successful investment strategy in the past. Following this strategy at the present time could prove a shrewd move. This is since a number of high-quality dividend stocks appear to be trading on valuations that are lower than their historic averages.
Certainly, a challenging economic outlook could cause their prices to move even lower in the short run. But, the past performance of the stock market shows they are unlikely to remain at depressed prices over the long run. In fact, the stock market has always recovered from its various bear markets to move higher than those achieved in its previous bull market.
Therefore, purchasing high-quality companies with the potential to pay growing dividends could lead to a substantial nest egg in the coming years and the chance of early retirement.
Relative appeal
Demand for dividend stocks may not be especially high at the present time among income investors. Significant risks are facing the world economy that may disrupt operating environments across a wide range of industries.
However, over time the popularity of dividend stocks could increase significantly. It is becoming increasingly difficult to generate a worthwhile income return from other mainstream assets such as cash and bonds. As the economy recovers, policymakers are likely to maintain a supportive monetary policy stance. This could be through policies such as low-interest rates and demand for income-paying stocks could increase.
This may help to push the prices of dividend stocks higher in the coming years, ultimately helping you retire early. Therefore, the end result could be a larger retirement nest egg making it easier for you to generate a generous passive income in an older age.
Focusing on quality
At the present time, many industries are experiencing significant change. This may persist over the next few years, as consumer habits are potentially altered by the unprecedented coronavirus pandemic.
Therefore, diversifying across a range of dividend stocks could be a logical move. It will enable you to reduce your overall risk at a time when it is unclear exactly which sectors will deliver strong performances in the long run. This strategy could also boost your returns and provide a more resilient passive income. All of this put together should equal the opportunity for you to retire early and achieve 'nest egg' status much sooner than expected.
