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Income Stocks: A Once-in-a-Decade Chance to Get Rich

Canadian Dollars
Image source: Getty Images

Written by Amy Legate-Wolfe at The Motley Fool Canada

No, this isn’t a lie. When it comes to investing, buying up stocks during a downturn is an excellent time to get in while the iron is cool. That way, when it heats up again,, you can be sure to have higher-than-average returns.

And one of the best ways to get in on this action is by buying up income stocks. Income stocks can provide you with higher returns during a downturn as the market heats up. However, they can also provide you with money you can reinvest as you go along! So, let’s look at what’s influencing this once-in-a-decade opportunity and where to invest.

What’s happening?

During an economic downturn, stock prices often drop significantly due to market uncertainty, lower earnings, and reduced consumer spending. This creates opportunities to buy high-quality stocks at a discount, setting the stage for potential gains when the economy recovers.

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Investors tend to react strongly to negative news, sometimes leading to an overcorrection in stock prices. This panic selling can push prices below their intrinsic value, providing a window for savvy investors to purchase undervalued stocks.

Furthermore, in the past, markets have rebounded strongly after downturns. By investing during the lows, investors position themselves to benefit from the subsequent recovery. This “buy low, sell high” approach can lead to substantial gains as the market recovers.

As for income stocks, during downturns, dividend yields may increase as stock prices fall. Investors can lock in higher yields on dividend-paying stocks, which provides a steady income stream and potential for capital appreciation when stock prices rise.

Where to invest

Now investors might be tempted to go for growth stocks as the market recovers. However, I would urge instead to look for companies that have a proven path forward. And for that, I would look to Nutrien (TSX:NTR).

Nutrien stock is a major player in the agricultural sector, providing crop nutrients and services globally. The essential nature of agriculture supports its stability and recovery potential. After shares soared into the triple digits, those shares have now come back down to earth. And then some. But what that means is you can grab hold of a 4.24% dividend yield while it trades at 29.77 times earnings.

The income stock stands out as a strong candidate for investors looking for resilient dividend stocks, particularly during economic downturns. In the first quarter of 2024, Nutrien stock reported net earnings of $165 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.1 billion. While these figures represented a decline from the previous year, they reflect the company’s ability to generate substantial earnings even in a challenging market environment.

Furthermore, potash is a critical nutrient for global agriculture, essential for improving crop yields. The demand for potash is expected to remain strong due to the ongoing need for increased agricultural productivity to feed a growing global population.

As to the company itself, Nutrien’s guidance for 2024 anticipates potash sales volumes between 13.0 to 13.8 million tonnes, indicating steady demand and operational efficiency. Just as analysts predict that potash prices will rise by the end of 2024, enhancing Nutrien stock’s profitability and supporting higher earnings.

Bottom line

Nutrien stock’s strong financial foundation, strategic investments, and robust outlook for the potash market make it a compelling dividend stock for investors. Its ability to maintain steady earnings and dividends, even during economic downturns, highlights its resilience and potential for quick rebound, offering both income and growth opportunities for long-term investors.

The post Income Stocks: A Once-in-a-Decade Chance to Get Rich appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien. The Motley Fool has a disclosure policy.

2024