Don’t worry about a stock market crash, I’d buy cheap dividend shares now

It’s easier to identify good dividend shares than predict how the stock market will perform. So why waste time worrying about the future?

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There are plenty of attractively priced dividend shares available at the moment. But with a gloomy economic outlook, I’m sometimes tempted to sit back and wait before adding more to my portfolio.

Some of my caution stems from Harry Dent, a financial strategist. In October 2023, he told ThinkAdvisor that he was expecting a market correction in 2024. He said: “People think I’m crazy when I say the stock market will go down 86% on the S&P — the worst case but also my most likely case.”

However, Dent’s view makes him something of an outlier.

A recent survey found that only two out of 12 analysts think the S&P 500 will fall in 2024. The most pessimistic is expecting a reduction of 8.5%, from its close on 1 December 2023.

But the truth is nobody knows how the stock market will perform in 2024. This means there’s little point making predictions.

A more productive use of time

Instead, I believe my time is better spent looking for undervalued dividend shares.

If there was a market crash then the yields on these would increase further. But I’ve learned to my cost that delaying investing — in the hope that better opportunities come along — isn’t necessarily a good strategy.

Assuming most investors behave rationally, if a stock is genuinely a bargain it will soon be noticed, and its price driven higher. Indecision and delay have been described as the parents of failure.

Here are three FTSE 100 dividend stocks that currently look cheap to me.

Three bargains?

Compared to its 2019-22 average, Taylor Wimpey is forecasting it will build 24% fewer homes in 2023. And although a recovery in the housing market isn’t guaranteed, its directors demonstrated their confidence in the future by increasing the interim dividend. If it pays the same as it did in 2022, its shares are currently yielding around 7%. Encouragingly, the company has a strong balance sheet and plenty of land on which to build.

For the past six years, Vodafone has maintained its payout of 9 euro cents a share. On the back of flat revenue and falling earnings, most analysts are expecting a cut for the year ended 31 March 2024 — the average prediction is 7.29 euro cents. And some are concerned about its huge debt. But the company’s agreed to sell its operations in Spain. This will bring in over €4bn in cash, which will give it additional headroom, should it be needed. The stock’s currently yielding over 10% which makes it particularly attractive.

National Grid is a stock that keeps on giving — it last cut its dividend in 1996. For its 2024 financial year, it’s increased its interim payout by 8.7%. Repeating this for the final dividend implies a current yield of 5.8%. Not bad for a stock that enjoys monopoly status in its key markets. But to meet regulatory requirements, it’s required to spend heavily on infrastructure over the next few years. Despite this, the company’s forecasting growth in its earnings of 6%-8% each year until at least 2026.

Unfortunately, this is something of a theoretical exercise as I don’t have any spare cash at the moment. But as soon as my situation changes, I’m going to start looking for cheap dividend shares, regardless of how the wider market is expected to perform.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has positions in National Grid Plc and Vodafone Group Public. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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