COVID-19: why hard-hit dividend shares could make you a fortune in 10 years

Many dividend shares have experienced difficult trading conditions over recent months. COVID-19 is an unprecedented crisis that has produced a challenging outlook for a wide range of businesses. This may dissuade many investors from buying high-quality companies at the present time.

However, rising demand for income shares due to low-interest rates suggest that now could be the right time to purchase a diverse range of dividend shares. They could produce high returns that make you a fortune over the next 10 years.

Rising demand for dividend shares

Demand for dividend shares may not be especially high at the present time. After all, risks such as trade tensions between the US and China, and the prospect of a second wave of coronavirus, could cause difficult trading conditions for many.

However, companies that maintain shareholder payouts in the medium term may experience high demand from income-seeking investors. They are unlikely to have plenty of alternative options available in an era where low-interest rates are set to remain in place. For example, investors who had relied on bonds or cash in the past to generate an income may now focus their capital on dividend shares.

Rising demand for income shares could mean that their prices rise. As such, they may produce high capital returns that boost your portfolio’s prospects in the next decade.

Economic recovery

Buying dividend shares while an economic recovery is uncertain could be a sound move. At the present time, weak GDP growth could cause many investors to doubt the capacity of the global economy to bounce back from recent difficulties. This is an understandable view, often present during bear markets and recessions.

However, past performance of the economy shows it has always recovered to produce improving growth after even severe difficulties. This time, major stimulus packages have been announced across many large economies. They could catalyse the trading conditions for a wide range of companies. This could then lead to rising profitability and a greater capacity to pay improving dividends.

Capitalising on a recovery

It’s difficult to ascertain which industries will produce the quickest and strongest recovery from present economic challenges. Therefore, buying a diverse range of dividend shares could be a shrewd move. By spreading the risk across a number of companies, you can limit your exposure to a concentrated few businesses and benefit from the likely growth of the wider economy. This strategy could boost your portfolio’s performance and improve your financial position over the next decade.

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• Why I’m desperate to add CSL and 2 other ASX shares to my portfolio in 2020
• ASX 200 up again, ASX retailers make big gains
• The ASX big bank stock with the best forecast dividend yield for the new year

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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