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Dividend stocks are great places to be these days, with inflation reaching torrid heights and rising volatility that has proven too much for some. Indeed, the S&P 500 could test bear market territory (that’s a whopping 20% drop from top to bottom) in as little as a few months, at least according to some Wall Street bear experts.
Could it be that we are already in the early innings of a bear market? Indeed, a lot of negativity is embedded, but I don’t think a bear market moment is the most likely scenario. However, that doesn’t mean you shouldn’t prepare for it. A smart and careful investor should always be prepared once the bear emerges from its cave.
Although cash is the best thing to have when a bear market hits, you will be punished by inflation for it. This means that you need to decide on the optimal cash allocation, so that you can take advantage of opportunities when the bear market comes, but won’t put yourself in a situation where you will lose considerable buying power if no bear market comes around. strikes and inflation remains high. .
Saving vs Investing between turbulence and inflation: investors must find a balance!
With Canadian inflation nearing 7%, you’re essentially looking at a big loss if you save and just wait for the market bottom. Yes, the smart people at the big banks may claim they know what’s going to happen next, but they really aren’t sure. Rates are rising. It is a given. Now they could rise faster than expected. The Bank of Canada could increase by 50 to 100 basis points. The latter would come as a shock, while the former would probably not be significant for the broader markets, given that such a half point rise can already be anticipated.
Either way, dividend stocks seem like a happy medium. They won’t soar once tech lows, but they will also help you stay ahead with their juicy returns and lower relative volatility.
In terms of dividend payers, I prefer cheap games like Financial AI (TSX:IAG). The high yield stock is showing a single digit price/earnings multiple, which I don’t think makes sense given that value trading should be hotter given the many risks this market faces. and the chances of us falling into a bear market this year.
IA Financial: A very cheap financial to consider, even if you think a bear market will hit in 2022
IA Financial is an underrated insurer and wealth manager that only makes 9.3 times its earnings at the time of writing. The cheap stock comes with a dividend yield of 3.5%. Although it is not too high, I consider it more sustainable in the face of a possible economic recession. There is no doubt that management erred on the side of caution relative to its peers. Although growth prospects are tepid, given that IA has greater domestic exposure than its peers, I favor such exposure during tough times. Indeed, higher growth often comes at the cost of higher risk! In this regard, IA outperforms its peers, in my books.
IAG stock recently slipped 15% from its high of around $84 and the per-share change. I view the decline as an excellent buying opportunity for those looking for value and yield to fight inflation and volatility. Although growth may decline in an economic downturn, I view higher rates as a long-term net positive.