The almost endless stream of news articles about the latest Omicron variant of COVID-19 is doing my head in. In one article, Omicron is reckoned to be more transmissible than the Delta variant. In the very next article, it is claimed that the virus might cause less severe symptoms.
No sooner have we digested that, than another bombshell article tells us that our existing vaccines might not fully protect us against Omicron. Others say that even though it is less effective, our immune system should have been stimulated enough to provide us with enough protection against the latest variant.
So, is Omicron more or less dangerous that either the Delta variant or even the original strain of COVID-19? Nobody really knows yet. They probably won’t know until more data is available. But that hasn’t stopped the rumour mill from working overtime.
Point is, we’ve seen heard, read, and seen this story before. And we kind of know how it is going to play out. If necessary, we will all have to go through another period of social distancing, mask wearing and perhaps some degree of isolation to give drug developers time to come up with a suitable vaccine.
Nothing that has happened is in any way novel. So, why is the market freaking out? Perhaps it has nothing to do with Omicron at all. Perhaps it is more an overreaction to the possibility that the Fed could tighten monetary policy sooner rather than later.
And so, it should. There is more than enough evidence to suggest that inflation is becoming more of an entrenched problem rather than one that will go away of its own accord.
In either case, any pullback could be seen as a good buying opportunity, especially for income investors. Even with the prospect of two, three or maybe even four rate hikes next year, rising dividend payouts from strong income-generating companies should still be better than bond yields.
The operative phrase is “rising dividend payouts”. Income investors should try to focus on companies that can not only pay dividends, but also pay rising dividends. These are a very select group of dividend payers.
They don’t come cheap, for obvious reasons. But they could certainly be cheaper to buy when markets are in a tailspin. So, rather than fear a market correction, learn to embrace it with open arms. But just don’t forget to social distance when doing so.
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David does not own shares in any of the companies mentioned.
