How do you all feel about the markets right now? Seriously, drop a comment below. Are you feeling greedy and buying, or fearful and selling?
That’s how we talk about the markets in broad terms. Buying or selling, bullish or bearish, greedy or fearful. I tend to always be bullish on high-quality dividend stocks. But we know the opportunities vary by sector depending on what the overall market “vibes” are.
Part of my strategy to get “above average” yields requires us to look for undervalued shares. Monitoring the pulse of the overall market helps point us in the right direction. This means I continually consume data to get a feel for investor sentiment and how its moving different areas of the market.
In the last two years, accurately gauging the mood of investors has been the hardest in my 15 years in the market. I have watched the markets act less and less rationally. The current market climate is a great example.
Surviving A Split Personality Market
Despite a choppy November, the big three market indexes are all just a few percentage points off their record highs. The Dow Jones Industrial Average (DJIA) and the Nasdaq are up 12.5% and 21.2%, respectively, year to date. The most commonly cited measure of market health, the S&P 500, is up 16.7%.
Again, these above-average numbers are after a third-quarter earnings season that didn’t impress investors overall. Many companies met their guidance and analyst expectations only to be met with a slide in share prices. But it was just a blip in what has been a bullish year.
The CNN Fear & Greed Index tells a different story
It has been in the fear or extreme fear levels for about half of the year. Its latest run of fear started back on October 10. Five of its seven components are currently showing extreme fear. The two showing neutral: S&P 500 market momentum and the VIX (which is implied volatility of the S&P 500). Without the positive pull of the market, this indicator would be even lower.
So, what’s the smart investing move?
It All Comes Back to Dividends
When investors are greedy, I’m extra greedy. I want my share price gains and I want to collect my dividends, too. When markets are rising, my dividends let me have both. When it’s time to pocket my gains, I’ll have profited just like other investors. Until I sell, I have my quarterly dividends to spend as I please. I’m getting paid while I wait for my gains.
Remember where dividends come from. Companies have limited options on what to do with their profits. They can keep it as cash for a rainy day, reinvest it back into the business, or pay it out to the “owners” as a dividend. I want to be rewarded for being along for the ride with the management team.
If investors are fearful, I also want to own companies that pay a dividend. High-quality dividend payers will continue to issue their quarterly checks no matter what’s going on in the market. Companies that can reward shareholders are generally more stable. After plowing profits back into the business for growth, they still have money left over.
Our strategy will continue to work whether the market remains bullish or investors hit the “bearish” switch. Stick with your dividends. It’s a tried-and-true long-term plan.
I know for many of us it’s hard to be patient and wait for the right time to make the right move. But right now, we don’t want to overreact in either direction. We need to continue to collect our dividends as we watch for opportunities.
Sure, take any gains off the table on stocks you’re not 100% sure you want to keep holding. Look for price drops on your watchlist companies to lock in a great entry price and higher yield.
And continue to build your watchlist. Stay calm and rational and you’ll be ready for whichever direction the market heads in 2026.
For more income, now and in the future,
Kelly Green
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