Long-term investors can use market corrections to their advantage. It’s the perfect time to target great companies at reasonable prices. One key strategy comes from buying shares of companies that have a history of raising a dividend over time.
Dividend growth investing may not pay off over a short period of time, but buying during a correction can tend to create capital gains as stocks rebound.
One dividend growth play that went on sale this week is Home Depot (HD). The company saw shares drop 9 percent after reporting great earnings, with sales up nearly 11 percent and same-store sales up 8 percent in the past year.
Even with the recent drop in shares, the industry-leading home improvement store is up 33 percent in the past year.
Action to take: The company’s growth numbers are likely to continue, thanks to a booming housing market that is only just now starting to show sings of starting to cool.
Investors can now nab shares with a dividend yield of nearly 2 percent, with room for further growth in the future, making this a solid buy, particularly for retirement accounts.
For traders, shares are likely to rebound when market sentiment turns around. The May $350 calls, last going for about $6.20, were going for nearly $20 before the earnings selloff. This option could easily see a mid-to-high double-digit return in the coming weeks on a rebound in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.