When the market is rising, growth stocks are good investment choices. Most growth stocks are from new companies with great growth potential. However, in a declining or volatile market, these stocks may struggle as companies try to gain traction in the industry. In this guide, readers will learn why dividend stocks may be a better choice in a bear market.
Protection Provided by Dividend Stocks
When the market is shaky, investors typically take one of two courses: they sell positions in favor of interest-bearing securities or shift positions to a higher vantage point within the market. Dividend stocks are a great place to be when the market turns volatile.
Dividend Stocks Don’t Rely Solely on Capital Gains
All stocks are somewhat reliant on capital gains. It’s the main reason people buy stocks instead of putting all their money into CDs and Treasury bills. Growth stocks are exclusively reliant on capital gains, and because of that, they tend to fall quickly during volatile periods. Because dividend stocks aren’t as dependent on price increases, they decline less during periods of volatility.
Dividend-Paying Companies Are Usually More Established
Dividend stocks are usually issued by long-standing companies that lead their industries. Because of that standing, investors look to these companies during volatile periods. In addition to increased cash flow, these companies’ reliability makes them a safer play than a company that’s new to the market.
Staying Power During Volatile Periods
If an investor’s reason for holding a position is to sell it for a profit later, that interest could disappear during a period of decline. However, if a stock pays dividends, an investor may earn returns comparable to those from fixed-income investments.
Companies Can be Solid Even if the Market Isn’t
An all-or-nothing attitude can be detrimental during a downturn, as good stocks are lumped in with the bad ones. Markets can decline due to international developments, interest rate fluctuations, or even a diminished outlook on the most popular stocks.
Whether the stock market is falling or it’s at rock bottom, investors are always looking for safe buys. Here, dividend paying stocks provide an ideal equity position to take during a downturn. Learn more online at Rockwell Trading’s page.