Image source: Getty Images
After hitting more than 10,900 levels at the end of February, i FTSE 100 traded below 9,700 points on Monday. While this market decline has caused some to worry, there are opportunities for patient investors.
This is especially true when it comes to using dividend stocks to build a second income. How?
Chances are it’s not too expensive
Most income investors rate stocks by dividend yield as the first point of call. There are two components to the yield calculation: one is the dividend per share, which only changes a few times a year; another stock price, changing every day!
Therefore, stocks that have experienced similar corrections in the FTSE 100 are likely to have a higher dividend yield than last month (assuming that the dividend per share has not changed). In that sense, the second income opportunity for the investor has grown, as the average yield offered is now higher.
Of course, this needs to be handled carefully. Some stocks were negatively impacted by the Middle East conflict. As a result, future profits may decline, leading to dividend cuts. So careful research is needed to find stocks that have experienced an excessive selloff, driven by broader market sentiment rather than company-specific issues.
In these cases, it is possible to enjoy a high yield that may not last long. If we get a slowdown in the Middle East or other things that give investors a more optimistic outlook, the market can rally quickly.
Some companies have seen their dividend yields jump significantly over the past month. The Ashmore GroupThe yield increased from 7% to 8.05%, whereas Pollen Street GroupIt increased from 6.3% to 7.84% (about 25%).
Temporary anxiety
Another example to consider is Tritax Big Box REIT (LSE:BBOX). The dividend yield rose from 4.6% per month back to 5.56%, an increase of 20%. This is mainly due to the decline in the share price during this period, although the stock is still up 2% in the last year.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice.
The main factor hurting the stock has been concerns about high interest rates. Like most REITs, Tritax is very sensitive to interest rate expectations, and if rates rise due to higher energy-driven inflation, the cost of financing new projects will increase.
Investors have been quick to lower property values and diversify away from value-sensitive sectors. That has pushed shares to a significant discount to net asset value (NAV), as the company continues to operate.
Although this remains a risk, I believe the decline looks more about market sentiment than any actual deterioration in the underlying business. The demand for modern workspace architecture remains strong, driven by e-commerce and the need for fast delivery networks.
These are long-term trends that play directly into Tritax’s strengths, suggesting that employment and occupancy growth should remain strong. If interest rate pressures begin to ease, sentiment toward REITs could quickly improve.
On that basis, I think it’s an income stock for people to consider right now.
