Let me explain…
For many people, this stock market drop is scary. No one likes when stocks go down. And for the most part, neither do I. But there’s another side of the story if you’re interested in income investments…
Sure, the S&P 500 has fallen 10%. But its dividend yield has jumped 20 basis points, to 2.05%. That’s a huge jump in less than a month. We’re seeing many borderline yields — the ones too small to mess with — come back into our potential investment range.
Let’s use Wal-Mart Stores Inc (WMT) as an example. Wal-Mart is one of the safest bets on all of Wall Street. It may not go straight up, but it’s certainly safer than most retail plays. And if you could collect a reasonable dividend payment, it’d be worth holding through any market. Unfortunately, it just isn’t that large of a payer.
But as the broad market continues to decline, Wal-Mart’s relative payout is looking more and more attractive. After all, the company’s share price is an afterthought if you can cash in a respectable dividend. So as shares of Wal-Mart continue to drop (they’re already down more than 4% in the last quarter), the cash payouts collected by shareholders continue to become a larger percentage of your initial investment.
If this trend continues, we may be able to swoop in and pick up shares of Wal-Mart and lock in a dividend yield higher than it’s ever been before.
We aren’t there yet. And this isn’t necessarily a buyer’s market just yet. But as we enter a period of market stagnation, which we expect will happen in coming months, we might be able to lock in WMT with a yield approaching 3%. I’ll let you know if that time ever comes.
As you can see in the chart, higher dividends with lower stock prices can make all the difference. 2.4% is the highest dividend yield WMT has ever paid out – and incidentally, the stock’s price is at the highest level in history as well. Those two factors mean that any drops in Wal-Mart’s price will deliver a materially greater impact on the company’s yield.
But as attractive as Wal-Mart may be, I think that some of the ignored dividend plays on the market right now already offer impressive opportunities for the investors who know about them. That’s exactly the message I’ve been sending to my Lifetime Income Report readers lately – the difference, of course, is that I’ve already sent them my favorite ignored dividend stocks right now.
June 10, 2010