Home Finance Are Dividend Stocks the Safe Bet in A Looming Market Crisis?

Are Dividend Stocks the Safe Bet in A Looming Market Crisis?

Are Dividend Stocks the Safe Bet in A Looming Market Crisis?
Photo by Jason Briscoe on Unsplash

There are numerous investment vehicles available in the existing financial marketplace, some of which offer long-term gains and others that enable you to profit from real-time fluctuations in asset prices.

Dividends exist firmly as an example of the former, with this risk-averse type of stock investment known to be particularly popular during times of economic crisis and volatility.

In this post, we’ll explore dividend stocks in further detail while asking whether they represent the safe bet for investors in a sustained market crisis?

What is a Dividend Stock?

In simple terms, a stock dividend refers to a dividend payment afforded to shareholders within a specific company.

This payment can be made in the form of cash or shares, which are paid to company shareholders directly from the declared profits after the corporation tax payment. 

By operating as limited companies, firms find that dividends offer the most tax-effective way of extracting money from the business. When payment is made in equity, such stock distributions are generally made as fractions paid per existing share. 

So, if a business issues a stock dividend of 5%, it will be required to issue 0.05 shares for every stake owned by existing shareholders.

But why are dividend stocks so popular, particularly in a declining marketplace? Besides the flexibility that they offer to investors, they also deliver a regular source of income that can prove invaluable as stock values tumble in a volatile economy.

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Photo by 金 运 on Unsplash

Certainly, dividend investors will experience considerably less volatility in their portfolios, with companies that make regular and consistent payments likely to be blue-chip entities that boast incredible staying power.

So, even if a particular index or marketplace crashes, your chosen dividend stocks are considerably more likely to retain their value over time.

Why Dividends Are the Solution in an Uncertain Economy

By creating a secure income source and automatically reducing volatility in your portfolio, you can certainly optimize your chances of profiting during a strained and uncertain economic climate.

This is particularly pertinent at present. While the IMF has projected global economic growth of 5.5% through 2021, the continuation of lockdowns and quantitative easing measures across the globe contribute to a volatile economy that remains precariously placed.

Dividend stocks are also incredibly accessible, with a low spread forex broker offering a particularly viable option for investors.  

The key is to target so-called “dividend aristocrats,” which refer to blue-chip firms listed on major indices such as the S&P 500 and FTSE 100.

These entities are renowned for consistently paying dividends over the course of the last 25 years, with this trend likely to continue unchecked in the months and years ahead.

Featured Photo by Jason Briscoe on Unsplash

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