These stocks are your friends during a stock market crash

The race has been very difficult for investors in recent weeks. Stock values ​​have fallen since the second half of April, and this is on top of the losses investors were already seeing in their portfolios due to the volatility at the start of the year.

At this point, it would be premature to say that we are in the middle of a stock market crash. But it’s entirely fair to say that we’ve plunged into a bear market. And that can be unsettling whether you’re a new investor or have held onto a stock portfolio for years.

If you’re worried about a full-scale stock market crash, there’s one type of stock that might pay off – or hold.

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The advantage of dividend stocks

It is estimated that more than 400 companies within the S&P500 index pay dividends to investors. If you want to hedge your bets during periods of volatility, dividend stocks are a good option.

Companies that pay dividends tend to do so on a quarterly basis. This means that even during times of general stock market sluggishness, you can expect these predictable payouts.

Here’s another way to put it: companies that pay dividends tend to do so even during times when their stock prices are falling. This gives you options as an investor. You can take your dividends and use them as cash if you need the cash. This, in turn, could keep your portfolio untouched and avoid liquidating investments at a loss when they are down.

If you don’t have a pressing need for cash, it’s a good idea to reinvest your dividends. And it could help increase your portfolio’s total return or minimize the hit it takes when market conditions aren’t so favourable.

How to Choose the Right Dividend Stocks

If your goal is to ensure a steady stream of dividend income, consistency is key. As such, you’ll want to look at companies that have consistently paid (or better yet, increased) their dividends over the years.

One thing you don’t necessarily want to do is go after the highest dividends. Higher dividends do not necessarily imply that a given company is doing better financially than its competitors or that it has greater growth potential. In fact, it’s easy to argue that companies with higher dividends may limit their growth by not reinvesting enough in their respective businesses.

For the most part, however, companies with strong dividend-paying histories are established companies with solid finances behind them. And if you’re looking for a way to weather a stock market crash – whether short or long term – then it’s worth considering loading your portfolio with dividend-paying stocks.

Another option worth considering if your focus is on dividends is REITs or real estate investment trusts. REITs are required to pay out 90% of their taxable income as dividends to shareholders. If your portfolio is currently devoid of real estate stocks, you will also benefit from diversification. This, too, could be key to weathering a stock market crash.

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