The bear market is becoming a passive-income investor's dream

With stock prices tumbling, dividend yields are soaring.

A large brown grizzly bear follows a male hiker who walks along a path littered with leaves in the woodest forest.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on All figures quoted in US dollars unless otherwise stated.

A bear market can be brutal for investors. The more than 20% decline in stock prices has many investment portfolios well off their recent peak.   

However, bear markets can be a blessing in disguise if you own dividend-paying stocks. That's because there's an inverse relationship between stock prices and dividend yields. With the bear market taking stock prices down sharply, dividend yields are soaring. That allows investors to reinvest their dividends at higher yields. They can also use their idle cash to generate more income. That can enable investors to supercharge their passive income.   

Get more out of your reinvested dividends

Some investors automatically reinvest their dividends, while others manually invest that cash as they see fit. Either way, a bear market turns that dividend income into even more passive income.

For example, if an investor owned 100 shares of Crown Castle (NYSE: CCI), a leading real estate investment trust (REIT) focused on communications infrastructure, they'd receive $147 per quarter in dividends. If they reinvested that money into buying more shares of Crown Castle earlier this year when shares had a 2.6% dividend yield, it would boost their annualized dividend income by $3.80.

However, with shares falling more than 20% this year, the stock now yields 4%. Because of that, if an investor reinvested the company's $147 quarterly dividend payment at that yield, it would add $5.88 of annualized incremental dividend income. While $2 of additional annual dividend income might not sound like much, it adds up as it gets reinvested and compounded over the years. Crown Castle expects to grow its dividend by 6% to 8% per year, powered by increasing demand for communications infrastructure to support the build-out of 5G networks. 

Meanwhile, Crown Castle shareholders who don't automatically reinvest their dividends have the flexibility to invest that money into an even higher-yielding opportunity. For example, they could buy shares of VICI Properties (NYSE: VICI), a REIT focused on experiential real estate. It currently yields 5.1%. Because of that, an investor could turn their $147 Crown Castle dividend payment into a $7.50 and growing passive income stream by purchasing shares of the higher-yielding VICI Properties. The casino owner has recently increased its payout by 8%, its fifth raise since its formation. 

Turn idle cash into an attractive passive income stream

In addition to earning more income by reinvesting dividends, bear markets allow investors to turn cash sitting on the sidelines into a passive income stream.

For example, shares of Agree Realty (NYSE: ADC) have fallen more than 15% from their recent high. That has pushed up the REIT's dividend yield to 4.1%. At that rate, an investor could turn $1,000 of idle cash into a $3.40 monthly passive income stream ($41 annualized) since it pays a monthly dividend. That income stream will likely steadily rise in the coming years. Agree Realty has grown its dividend payment by 7.8% over the past year and at a 5.5% annual rate over the last decade. The REIT has a solid financial profile, giving it the flexibility to continue acquiring income-producing real estate to keep growing the dividend. 

Meanwhile, the bear market has brutalized shares of Digital Realty (NYSE: DLR). The data center REIT's stock is down over 40%, pushing its dividend yield above 5%. That would turn a $1,000 investment into a $50 (and growing) annual passive income stream. The company increased its payout by 5% earlier this year, marking its 17th straight year of giving investors a raise. With a strong balance sheet and a large pipeline of data centers under development, Digital Realty should be able to continue growing its dividend in the future. 

Bear markets can accelerate your passive income

For those fully invested in non-dividend-paying stocks, bear markets are a difficult time. However, they're an opportunity for those with cash or income-producing assets. Bear markets can accelerate investors' capacity to generate passive income because they can turn dividend income and idle cash into bigger income streams. That can enable investors to make more money in the future, putting them even closer to reaching their financial goals. 

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Matthew DiLallo has positions in Crown Castle, Digital Realty Trust, and VICI Properties Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Crown Castle and Digital Realty Trust. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended VICI Properties Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Stock-split watch: Is Tesla next?

Stock splits are fun. But how much substance there is in Tesla splitting its stock is debatable.

Read more »