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Is a stock market crash inevitable this year? Some are suggesting as much. The FTSE 100 and S&P 500 have both already dipped into (and then out of) the territory of a stock market correction. The Iran war could drag on and on, with all the effects on inflation and supply chains that it will have. All the while, on the domestic front, an ‘Awful April’ is set to take the cost-of-living crisis to a new level.
It’s anyone’s guess how the future will actually play out. But the possibility of a stock market crash throws up opportunities too. The panic of such an event could throw valuations into disarray, creating numerous chances for investors to pick up bargains in the market. Any upcoming crash might turn out to be an incredible passive income opportunity. Here’s how.
Maximising
Passive income is, for many, almost synonymous with dividends. The yield from a stock gives out a percentage return that means cash in the bank whatever the share price is doing. And, of course, the higher the better.
The yield itself is linked to the share price, however. For example, if a share price falls by 50% then the dividend as a percentage is doubled. This is why stock market crashes can be great opportunities to pick up oversold shares as the dividend yields start rising.
That doesn’t mean investors should go around buying willy-nilly in the event of a crash. A falling share price is sometimes a problem and can also lead to a cut in the dividend too. This is why good stock selection is key to maximising the potential passive income.
An option?
What companies might look attractive in the event of a crash? Well, one FTSE 100 stock that has already seen it’s yield grow is Standard Life (LSE: SDLF) – formerly known as Phoenix Group. A fall in share price over the last month or so has helped push the dividend yield up to an impressive 8.17%. I think it could be worth considering.
The defensive nature of the insurance business might insulate it from some of the worst effects of any economic turbulence too. Defensive stocks are prized when things get rocky because the revenues are relatively stable. In the case of retirement savings and life assurance, folks don’t tend to cancel at the first sign of trouble. Luxury spending like watches or jewellry tends to be the opposite, for example.
That’s not to say there is no risk. Its large asset base is sensitive to quick changes in interest rates, which can affect its value. The recent u-turn from the Bank of England – on the back of the conflict in Iran – to suggest rates will be going up this year could pose a problem for the company.
Only time will tell if a stock market crash does come our way this year. But if it does, I’m sure there will be opportunity in the markets as there always has been.
