Asymmetric benefits of dividend investing during bear markets

April 16, 2024

Benefits of investing in dividend stocks during bear markets.

Interest rate hikes usually have a negative impact on stocks. We are in an environment of rising interest rates, high inflation and a looming recession. There seems to be more headwinds than tailwinds facing the current investor.

One strategy to consider during a bear market is dividend investing. Dividend investing has the following benefits in a bear market:

Higher dividend yield when share price decreases

As the share price continue to fall, the benefits of dividends increases proportionally more (asymmetries)!

Let's use Microsoft as an example.

At the beginning of the year Microsoft had a dividend yield of 0.74%. The share price of Microsoft has fallen by -22.46% as at 1 July. However, the current dividend yield is now 0.96%. So, as the price falls the dividend yield increases.

Let's take it further, the -22.46% price decrease led to a 29.7% increase in the dividend yield! So, there's an asymmetric benefit since 29.7% > 22.46%.

*This is not a buy recommendation for Microsoft, I only used them to illustrate the benefits of dividend investing

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