Why this falling market could be a great opportunity to boost my passive income

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Stocks that pay dividends are my main source of passive income. Interest rates have risen since the start of the year, pushing down stock prices across the board. As a result, dividend yields have increased. As the Bank of England has announced that it will raise interest rates again in an attempt to control inflation, I see a great opportunity to increase my passive income.

Falling stock prices, rising dividend yields

I own shares in Starbucks in my wallet. At the start of the year, the stock was trading at $116.68 per share. Today, the stock price fell to $73.42.

Over the past 12 months, Starbucks has distributed $1.92 per share in dividends to its owners. For an investor who bought shares at $116.68, this represents a dividend yield of 1.65%. At today’s prices, however, the dividend yield is a much more attractive 2.62%.

That extra yield can make a big difference. Investing £1,000 at 1.65% generates a return of £178.99 after 10 years.

At 2.62%, however, the yield is £298.42. In other words, buying stocks at today’s prices, compared to prices at the start of the year, offers a much more substantial dividend yield that can accumulate over time.

So I think lower stock prices create better passive income opportunities. Another stock I’m looking at is Lloyds Banking Group, where a 12% drop since the start of the year has pushed the dividend yield from 4% to just over 4.5%.

choose carefully

I think falling stock prices create some interesting opportunities for generating passive income. I also believe, however, that not all stock price declines are equally good opportunities and that there are risks that I need to be aware of.

The Bank of England is trying to bring inflation down. If it succeeds, it could be bad news for companies like Rio Tinto and BPbenefiting from high commodity prices.

Likewise, if high inflation persists, it could pose a challenge for companies like Unilever and Burberry. As companies fare best when their costs of entry are low, continued inflation could consequently undermine their profit margins and dividend yields.

Therefore, I believe that the decline in the stock market is not without risk for an investor like me looking for passive income. I anticipate that some companies will have to cut or stop their dividends as the underlying companies face challenges.

Ultimately, I think there are great opportunities for me to add to my passive income portfolio. Starbucks, in particular, stands out at current prices.

I think it’s important to be selective in this market. But if I have a clear view of a company’s prospects, then I think a falling stock market can be a great opportunity to increase my passive income while stock prices are lower than they might be. were at the beginning of the year.