{"id":10180,"date":"2022-07-10T18:07:15","date_gmt":"2022-07-10T23:07:15","guid":{"rendered":"http:\/\/blog.jlbn.net\/?p=10180"},"modified":"2022-07-10T18:07:16","modified_gmt":"2022-07-10T23:07:16","slug":"how-to-build-great-passive-income-streams-during-bear-markets","status":"publish","type":"post","link":"http:\/\/blog.jlbn.net\/?p=10180","title":{"rendered":"How to build great passive income streams during bear markets"},"content":{"rendered":"\n

Bear markets could be the best time to build a strong passive income stream with shares like Macquarie Group Ltd (ASX:MQG).<\/em><\/strong><\/p>\n\n\n\n

I believe that bear market<\/a> times could be a great time to start building a great passive income stream.<\/p>\n\n\n\n

Why bear markets are a good time to build passive income streams<\/strong><\/h2>\n\n\n\n

Bear markets are the most painful times when it comes to the share market.<\/p>\n\n\n\n

Share prices decline painfully. Profit disappears. Confidence falls. Even dividends are cut, though the cut is usually <\/em>less affected than the profit drop. This is to Boards having discretion about what dividend payments will be.<\/p>\n\n\n\n

However, I think it\u2019s important to remember when share prices fall it causes the dividend yield<\/a> to increase for potential passive income investors (assuming the dividend isn\u2019t cut).<\/p>\n\n\n\n

I\u2019ll give you an example. If a reliable dividend share starts with a 4% dividend yield and the share price drops 33% then the new yield for potential investors is 6%. This is the type of dividend opportunity I\u2019m seeing with shares like Brickworks Limited<\/strong> (ASX: BKW)<\/a> and Duxton Water Ltd<\/strong> (ASX: D2O)<\/a>.<\/p>\n\n\n\n

What about the ones with coronavirus-affected or cyclical dividends?<\/strong><\/h2>\n\n\n\n

There are plenty of shares on the ASX that are likely to see dividend cuts over the next 12 months because of the direct coronavirus<\/a> effects (like travel bans) or the indirect economic consequences.<\/p>\n\n\n\n

I think we may see painful dividend cuts from companies like Commonwealth Bank of Australia<\/strong>(ASX: CBA)<\/a>, Macquarie Group Ltd<\/strong> (ASX: MQG)<\/a>, Premier Investments Limited<\/strong> (ASX: PMV)<\/a> and Cromwell Group<\/strong> (ASX: CMW)<\/a>.<\/p>\n\n\n\n

I believe it\u2019s a yield trap to think that the next 12 months of CBA dividends will be $4.31 per share, equating to a 10% grossed-up dividend yield. It could actually be 8% with a 20% dividend cut. It may be 5% with a 50% dividend cut. Not great for short-term passive income. <\/p>\n\n\n\n

But, in my opinion, CBA could be the first ASX bank to recover back to its former dividend level in perhaps three years from now. It could be back to paying $4 or more per share. If you take the longer-term view, this could be an opportunistic time to buy future <\/em>dividends for passive income.<\/p>\n\n\n\n

However, I\u2019d prefer the financial shares of Macquarie and Challenger Ltd<\/strong> (ASX: CGF)<\/a> over CBA for their long-term growth prospects.<\/p>\n\n\n\n

How much of a difference does it make for passive income?<\/strong><\/h2>\n\n\n\n

Well the S&P\/ASX 200 Index<\/a><\/strong> (ASX: XJO) is currently down around 25% since the declines began after 21 February 2020. Each individual share will have different dividend prospects. But if that share it has fallen by 25% it boosts the dividend yield substantially. <\/p>\n\n\n\n

If a yield was 4%, it is boosted to 5.3%. Imagine you invested $100,000 today \u2013 you get an extra $1,333 in dividends compared to if you invested a couple of months ago (assuming no dividend cuts).<\/p>\n\n\n\n

If a yield was 6% it is boosted to 8%, and so on.<\/p>\n\n\n\n

Foolish takeaway<\/strong><\/h2>\n\n\n\n

I think this is an opportunistic time to start building up your passive income stream. You can get a much bigger dividend yield, whether it\u2019s now or later. I believe this will mean more dividends hitting your bank account in the coming years.<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Bear markets could be the best time to build a strong passive income stream with shares like Macquarie Group Ltd<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421,3422],"tags":[3443,3431,888,3425],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10180"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10180"}],"version-history":[{"count":1,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10180\/revisions"}],"predecessor-version":[{"id":10181,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10180\/revisions\/10181"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10180"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10180"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10180"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}