The FTSE 100 is falling sharply. Here’s why dividend investors should be excited

FTSE 100

Market volatility is back. After what seemed like an endless stretch of calmness, global markets have jolted back into life.

Yesterday, the Dow Jones index fell an incredible 1,175 points, the single largest one-day drop in history. At one stage in the day, the index was down 1,600 points.

UK stocks haven’t escaped the carnage. The FTSE 100 has finished down 2.6% today. It’s back at 7,141 points, around 8% below its all-time high, set in mid-January.

Why the drop?

There are several factors driving this volatility.

The main driver, in an ironic twist, is that economic news from the US has been stronger than anticipated.

So there’s talk of three or more interest rate increases in the US this year.

Combine that with several other issues such as the selloff in the bond market and talk of quantitative easing being withdrawn in Europe and investors are panicked.

Valuations were stretched

To my mind, a correction has been on the cards for a while now.

Last year was simply too calm.

Valuations have looked stretched.

It was only a matter of time until volatility returned.

Dividend investor’s dream

While most investors hate this kind of volatility, personally, I love it.

As a dividend investor, market volatility means opportunities.

Opportunities to pick up high-quality stocks with big yields.

That excites me.

For example, look at the prospective yields* currently on offer from these blue-chip stocks:

Royal Dutch Shell 5.8%
BP 6.0%
Imperial Brands 6.9%
Legal & General Group 6.4%
Lloyds Banking Group 6.9%
National Grid 6.2%
Aviva 6.0%
WPP 5.1%
Unilever 3.6%

I don’t know about you, but those yields look pretty attractive to me. Imperial Brands is yielding almost 7%! Even Unilever’s yield is beginning to look attractive.

Of course, global markets could continue to fall further. The FTSE 100 could easily fall below 7,000 points. So a cautious approach is probably sensible.

However, the bottom line is that the dividend investor shouldn’t fear market volatility. Instead, it should be embraced, as it brings dividend opportunities.

* All yields are prospective FY2018 yields.


Disclosure: Edward Sheldon, CFA owns shares in Legal & General Group, Royal Dutch Shell, Imperial Brands, Lloyds Banking Group, Aviva, WPP and Unilever.

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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