Here’s why a FTSE 100 crash could be the best buying opportunity in years

As the FTSE 100 (INDEXFTSE: UKX) falls to levels last seen more than a year ago, I say it’s time to load up on dividend shares.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The headlines this week have been filled with stories of a stock market crash.

By market close on Thursday, the FTSE 100 sat at 6,796.4 points. That’s a fall of 609.5 points over the course of the week, or 8.2%. And as fears of the coronavirus spread faster than the tiny critter itself (if you can even call it a critter), stock markets have been slumping around the world.

A decline of 8.2% is a huge slip by index standards. The Footsie is still a bit above the level it commanded at the end of 2018, though. And Thursday’s 6,796.4 points is still way ahead of the 5,500 point levels we saw in February 2016.

Now, while we’re nowhere near a Great Depression-style crash, the week has still shaken investors to their bones. We could well be in for more carnage, but I’m always contrarian when I see panic-led stock market weakness. I reckon this week has opened up some cracking buying opportunities. And if things go well next week, or maybe I mean badly (depending on your viewpoint), we could see even more share price bargains lining themselves up.

Record income

At the end of 2019, according to AJ Bell, the FTSE 100 was on for a 4.7% dividend yield in 2020. There was a total of £91.1bn expected to be handed out, based on aggregating forecasts from the investing world. That would be a record total, and a yield of 4.7% would be significantly higher than the long-term average.

Despite our economic uncertainties, companies have been slowly growing their earnings in recent years. And that’s allowed many of them to keep boosting their dividends. But as share prices have been lagging, the yields have been gradually escalating. The share price weakness has been for all sorts of reasons. But Brexit is big among them, and trade conflict between the US and China hasn’t been helping.

Now, if that mooted 4.7% wasn’t enough to tempt you into buying shares, let’s look at where we are today.

Since the end of 2019, the FTSE 100 has fallen by 10.1% (and, incidentally, the FTSE 250 has dropped by almost exactly the same amount). That’s pushed the expected overall dividend yield for the FTSE 100 up to a whopping 5.2%.

Dividend pressure?

That does assume that dividend forecasts remain unchanged, and in the light of possible business impact from the coronavirus spread that might not be so. But I actually think overall dividends will remain strong, even if some individual ones might decline a little. That’s for two main reasons.

One is that the virus effect will almost certainly be short term. Sure, it might last months, but against an investment horizon of, say, five years (which is the absolute minimum I’d contemplate), that’s not long. I doubt there will be any lasting effect on any FTSE 100 companies.

Secondly, companies will surely be very reluctant to cut their dividends in the short term, even if they might have a tougher year than expected.

The bottom line for me is that I see this week’s crash as helping us lock in some great dividend yields. And if it continues next week, we could see some even better potential income buys lined up.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »

Yellow number one sitting on blue background
Investing For Beginners

My number 1 tip for Stocks and Shares ISA investors

This strategy has improved Edward Sheldon’s ISA returns dramatically and he thinks it could help other investors have more financial…

Read more »

White female supervisor working at an oil rig
Investing Articles

Down 20% in a year, is the BP share price simply too cheap to ignore?

After sliding for months, is the BP share price as low as it'll go? Even with the risk of more…

Read more »