Millions of us invest for a second income. And Donald Trump’s ‘Liberation Day’ tariffs may have provided investors with an opportunity to snap up inflated yields. That’s simply because when share prices fall, dividend yields go up.
What’s happening?
As I write, the FTSE 100‘s around 8% off its highs. Meanwhile, the S&P 500 is around 12% off its highs. This is a direct result of Donald Trump’s trade policy, which has delivered a great deal of uncertainty in addition to the very concerning impact of tariffs on company earnings.
For investors seeking a secondary income, this environment may offer a chance to lock in elevated dividend yields. Companies with strong domestic operations and stable cash flows, such as utilities and certain real estate investment trusts (REITs), may provide more reliable dividends amid global economic uncertainty.
However, there are several things to bear in mind. Firstly, caution is essential. The final extent of the tariffs is unknown. Moreover, the long-term effects of the tariffs are still unfolding, and sectors heavily reliant on international trade may face prolonged challenges.
What’s more, I’m concerned that the market could drop further in the event of a US recession. Many analysts have already suggested the US is in recession, but the data is yet to support that. Time will tell. Even Cathie Wood thinks the US is entering one.
And finally, many dividend stocks have already recovered. That may reflect a position of shelter from Trump’s tariffs. But it could also reflect something of a safety investment.
Did I miss my chance?
Investors need to weigh up the pros and cons of buying in such an environment. It’s also something of a gamble given Trump’s unpredictability. Investors who picked up shares in Legal & General last week would have locked in a 9.5% dividend yield and already benefitted from 10% price appreciation as the stock shook off the impact of Trump’s tariffs.
However, there are other stocks that haven’t quite bounced back. Banks like NatWest still offer a sizeable 4.8% dividend yield, that’s up from around 4.5% a few weeks ago.
One stock that hasn’t recovered fully is Greencoat UK Wind (LSE:UKW). The renewable infrastructure fund currently offers investors a 9.1% dividend yield and trades at an impressive 30% discount to the net asset value (NAV) — these are UK-based wind farms.
The trust’s 9.1% yield is well covered by cash flows, with a 2024 dividend cover of 1.3 times, and management has demonstrated ongoing commitment to shareholder returns through share buybacks and opportunistic asset disposals at NAV.
A key risk for Greencoat is its sensitivity to wind conditions and power prices. In 2024, electricity generation was 13% below budget due to low wind speeds and operational issues, directly impacting revenues. Additionally, the trust’s asset valuations rely on long-term assumptions about wind speeds and power prices which, if overly optimistic, could lead to further NAV declines. Gearing also amplifies risks.
However, I believe this is a well-run business that should benefit from ongoing green energy trends. It’s an investment I may consider, but as noted before, caution’s key. The market may push down again. In fact, it seems very likely.
