For some investors, a 10% correction in the FTSE 100 is the stuff of nightmares. If you’ve just committed a large lump sum to the market, for example, you’ll be watching in horror as its value falls.
Or if you’ve got no spare cash to go shopping for bargains, you can only sit on the sidelines in frustration.
But for others, this is the stuff investment dreams are made on. Because as share prices fall, the relative value of dividends has risen to eye-popping levels.
Track That!
After falling from its 52-week high of 6,878, the FTSE 100 now yields a beefy 3.68%.
That’s more than three times today’s inflation rate of 1.2%.
Better still, UK stocks look far from overvalued. The index currently trades at 12.71 times earnings, comfortably below the 15 times earnings traditionally seen as fair value.
So today looks like a good time to top up a low-cost index tracker.
Juice It Up
But if you want a really juicy yield, it’s time to go foraging for individual company stocks. And there is plenty of low hanging fruit for income seekers right now.
The Chinese bribery scandal has been poison for the GlaxoSmithKline share price, but manna for those who crave income, because it now yields a tasty 5.91%.
A 20% fall in the Vodafone Group share price over the last year has ramped its yield up to 5.85%.
British Gas owner Centrica yields 5.81% and another utility, SSE, yields 5.67%.
Oil giants BP and Royal Dutch Shell both yield around 5.4%.
By comparison, the average easy access savings account pays just 0.67%, according to Moneyfacts.co.uk.
Shopper’s Paradise
Some yields have gone a little crazy, such as MW Morrison, whose stonking 8.3% yield looks vulnerable, even though management recently confirmed its progressive policy by upping its dividend payout.
Supermarket rival J Sainsbury, which has done better at holding onto market share than Morrisons, yields just over 7%, but again, that could be on the chopping block as the supermarket price war intensifies.
It may feel like the end of the world right now. But it always feels like that, when markets plummet. They have always recovered in the past, and unless now really is the end of the world, they will recover again.
It’s at times like these, when many investors are fleeing in terror, that far-sighted investors need to keep their heads.
Especially if they’re after inflation-busting rates of income.
