Dividends, Investing

Worried About Falling Stock Prices?

By Kanwal Sarai
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fearAre you worried about falling stock prices? If you’re thinking about investing, then falling stock prices are great!

The key is to buy quality stocks when they are undervalued. The return on your investment (dividend yield) will also be higher when stock prices are low. Let’s take a look at a real-life example:

ConocoPhillips was founded in 1917, and is an American company which explores for, develops, and produces crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide.

ConocoPhillips trades on the New York Stock Exchange under the stock symbol “COP”.

About 4 months ago COP was trading at $86.76, and the dividend was $2.92, which meant you would earn 3.36% on your investment.

Dividend Yield = (dividend / stock price) x 100
Dividend Yield = ($2.92 / $86.76) x 100
Dividend Yield = (0.0336) x 100
Dividend Yield = 3.36%

On October 14th the stock price dropped to $66.20, and the dividend remained at $2.92. Can you guess what the return on investment would’ve been after the price drop?

Dividend Yield = (dividend / stock price) x 100
Dividend Yield = ($2.92 / $66.20) x 100
Dividend Yield = (0.0441) x 100
Dividend Yield = 4.41%

As you can see the lower the stock price gets the higher the dividend yield gets. Therefore a $5000 investment in COP would yield:

3.36% of $5000 = $168
or,
4.41% of $5000 = $220

$220 return on your investment represents an increase of 31% over the $168 return. Would you rather earn $220 or $168?

Lower stock prices represent great opportunities to buy quality dividend paying stocks at higher yields.

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Kanwal Sarai

With more than 27 years of investing experience and a passion for investing and teaching, I demystify the world of investing. My goal is to help you grow your net worth by investing in quality dividend paying stocks. Build your own stream of increasing income today.

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Showing 2 comments
  • Jackie Bolen
    Reply

    Like you, I’m not worried at all about falling stock prices. I have a pile of cash I’m waiting to deploy so I’ve been waiting patiently for a crash of some sort.

  • kanwal
    Reply

    It’s always a good idea to have cash available for investing. Patience is key, wait for quality dividend paying stocks to be undervalued before you purchase them.

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