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After hitting levels above 10,900 points at the end of February, the FTSE 100 traded below 9,700 points on Monday. Even though this move lower in the market has caused some to fret, there are opportunities present for patient investors.
This is especially true when it comes to using dividend shares to build a second income. How so?
Mispriced opportunities
Most income investors rank stocks by the dividend yield as a first point of call. There are two components in the yield calculation: one is the dividend per share, which only changes a few times a year; the other is the share price, which changes every day!
Therefore, stocks that have experienced a similar correction to the FTSE 100 are likely to have a higher dividend yield than a month ago (assuming the dividend per share hasn’t changed). In that sense, the second income potential for an investor has shot up, as the average yield on offer is now higher.
Of course, this needs to be treated carefully. Some stocks have been negatively impacted by the conflict in the Middle East. As a result, future earnings could decline, leading to a dividend cut. So careful research is needed to find stocks that have experienced an excessive selloff, driven by broader market sentiment rather than company-specific problems.
In these cases, it’s possible to enjoy an elevated yield that might not last long. If we get a de-escalation in the Middle East or other catalysts that give investors a more optimistic outlook, the market could rally fast.
Some companies have seen the dividend yield jump considerably over the past month. Ashmore Group‘s yield has risen from 7% to 8.05%, while Pollen Street Group‘s has risen from 6.3% to 7.84% (around 25%).
Short-term concern
Another example worth considering is the Tritax Big Box REIT (LSE:BBOX). The dividend yield’s risen from 4.6% a month back to 5.56%, an increase of over 20%. This has mostly been driven by a move lower in the share price over this period, although the stock’s still up 2% over the past year.
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The main factor hurting the stock has been concern around higher interest rates. Like most REITs, Tritax is highly sensitive to interest rate expectations, and if rates do increase due to higher energy-driven inflation, the cost of financing new projects will increase.
Investors have been quick to mark down property valuations and rotate away from rate-sensitive sectors. That’s pushed the shares to a notable discount to net asset value (NAV), even as the company continues to perform operationally.
Even though this remains a risk, I believe the decline looks far more about market sentiment than any real deterioration in the underlying business. Structural demand for modern logistics space remains strong, driven by e-commerce and the need for faster delivery networks.
These are long-term trends that play directly into Tritax’s strengths, suggesting that rental growth and occupancy should remain resilient. If interest rate pressures begin to ease, sentiment towards REITs could improve quickly.
On that basis, I think it’s an income stock for people to consider at the moment.
