In the latest share market selloff, many of Australia's biggest and best companies have been hit hard.
So what's an investor to do?
Should we sell our shares, walk away with our tail between our legs and dump our money in term deposits which are currently offering terrible interest rates?
Maybe we should just bunker down and keep holding?
Or should we just continue buying more shares?
I believe the latter is the way to go. That is, people who are looking to invest for the long term (five years and more) should position their portfolios to benefit from the seemingly discounted share prices on offer today.
However, we shouldn't get fooled (lower case 'f') into buying shares simply because they are 'cheaper' than what they were a month or two months ago. Nor should we get sucked into buying the companies simply because they have the biggest dividend yields.
For example, shares in National Australia Bank Ltd. (ASX: NAB), Telstra Corporation Ltd (ASX: TLS) and Westpac Banking Corp (ASX: WBC) have fallen heavily since the beginning of September, down 5.7%, 2.8% and 5.8%, respectively. They also offer dividend yields of 5.9%, 5.5% and 5.6% fully franked, respectively.
However, none of them are a bargain at today's prices, despite falling as hard as they have. I believe each stock continues to trade above and beyond what would be a fair price to pay.
In fact, all three would have to drop around 10% from today's prices before they fall beneath my intrinsic value estimates. So, in my opinion, investors would be wise to look for other big dividend stocks ideas…
