You’re probably tired of reading and thinking about the FTSE 100 crash. It’s really not much fun, especially if you’ve seen the value of your dividend stocks crash over the last few weeks.
I think the safest investing plan in this market is probably to focus on high quality businesses. That means those with a track record of thriving in tough circumstances. Both of the dividend stocks I’m looking at today pass this test, in my opinion.
Always in fashion
Fashion retailer Next (LSE: NXT) hasn’t rushed to update the market on the impact of the coronavirus outbreak. Sensibly, the company decided that there was no point rushing in with a vague, half-baked warning that profits might be lower this year.
Instead, management spent time modelling various scenarios in detail. On Thursday, it published details of this work with its annual results. The result? Next could “comfortably sustain” a £1bn (25%) sales fall without exceeding its current lending facilities.
Impressive stuff. That’s a big chunk of sales to lose without suffering any financial problems. Of course, Next’s profits would be hit badly if sales drop in this way. But that’s not important — profits will fall at most companies this year.
What we need to focus on as investors is the long-term security of this business. Will it survive? And will shareholders be wiped out in a debt refinancing? With Next, I’m confident the business will survive. And I’m also confident shareholders will continue to be rewarded for their support.
A great dividend stock
Next boss Lord Wolfson always has plenty to say that makes sense. And he’s pointed out that the coronavirus could speed up changes in consumer behaviour that will stay with us after the pandemic. Such as? Well, the shift to online shopping could accelerate, for example. We can’t be sure, but I’m confident Next will remain well managed and highly profitable.
I think profit forecasts for 2020 are largely a waste of time at this stage. But based on Next’s results for last year, the shares currently trade on around nine times forecast earnings. And they have a dividend yield of around 4%. I think that could be a good entry point for a long-term investment.
Market crash boosts profits
Volatile market conditions can be scary. But the high trading volumes we’ve seen in recent weeks have been good news for brokers and other firms that handle stock market transactions. Fee revenue is up.
My pick is FTSE 250 spread betting and CFD provider IG Group Holdings (LSE: IGG). This is one of my largest shareholdings, and I’ve been buying more in recent weeks.
On Thursday, the company issued a trading update confirming that revenue in the quarter to 29 February was 29% higher year-on-year. That’s pretty impressive considering the market only started to fall in mid-February.
I’d expect a similar performance in March, but beyond that, who knows? Yet it’s worth noting that the IG share price has only fallen by about 17% this year. Now, that’s much less than the wider market drop of around 30%.
IG shares currently trade on about 15 times forecast earnings, with a dividend yield of 7%. As we’ve seen, owning this stock can provide some protection against market falls. At current levels, I think the shares should be a very good buy.
