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What do you recommend investors do in light of the market volatility caused by the COVID-19 virus?

We’ve seen this movie before. Last time, in 2008-09, it was a subprime mortgage virus affecting the global financial system. This time around, it’s a virus infecting people.

The market recovered from the credit crisis; it will recover from the coronavirus, too.

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You’ve heard it before, but it bears repeating: Selling into a market panic is almost always a bad idea. Sure, you might avoid further losses if the virus spreads widely and stock prices continue to fall. But it’s also possible that the market could stabilize or even rebound if the worst-case scenarios don’t materialize.

Regardless of how markets behave over the next several weeks or months, if you sell now – after the S&P/TSX Composite Index has already plunged about 10 per cent from its high – you will be sitting in cash and wondering when it’s safe to get back in. By the time you work up the courage to buy again, you may have missed the recovery.

Let’s be clear: Nobody knows the extent to which the virus will disrupt global economic activity and dent the profits of companies. But COVID-19 will eventually be controlled, likely with the help of vaccines and anti-viral drugs, and the world will get back to normal. If you have faith that your companies will survive the crisis, then hanging on to your stocks – as unpleasant as it may be at times such as this – is probably the best strategy.

As I’ve often said, focusing on dividend income instead of stock prices is a great way to cope with market turbulence. Amid all the carnage this week, there was actually some good news for dividend investors: Toronto-Dominion Bank (TD) and Canadian Imperial Bank of Commerce (CM) both hiked their dividends, by 6.8 per cent and 1.4 per cent, respectively. This followed a 2.9-per-cent dividend increase from Royal Bank of Canada (RY) the week before. Yes, their share prices plunged, but our banks – like most companies – will survive this.

It may also help to remind yourself that stocks aren’t just pieces of paper to be flipped; they represent part ownership of a business. If you owned a small business such as a store or a rental apartment building, would you be picking up the phone and trying frantically to sell it right now because people are anxious and prices of other businesses are falling? Of course not. Yet that’s essentially what you’re doing if you sell your stocks during a market panic.

As a shareholder, you are still a business owner. It’s just that the business is larger and run by professional managers. If you believe in the long-term outlook for the business, then selling to avoid what will almost certainly turn out to be a temporary drop in its value is precisely the wrong thing to do.

With the COVID-19 market scare, would you suggest looking for buying opportunities now? I’m semi-retired with some extra cash and looking for long-term dividend income.

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It depends. If your portfolio is already well diversified and you are satisfied with the weightings of equities and fixed-income securities, then doing nothing is probably the best approach. On the other hand, if you’ve been accumulating cash and waiting for an opportunity to increase your equity exposure, then now might be a good time to go shopping.

Sectors that are largely insulated from potential effects of the virus would be a good place to start. Utilities and power producers, for example, provide essential commodities, and their share prices might benefit from the plunging bond yields that we’ve seen in recent days and from potential rate cuts by central banks to stimulate the economy.

“Record-low bond yields increase the attractiveness of utility stocks and their highly secure dividend yields,” Bank of Nova Scotia analyst Andrew Weisel said in a note this week. Utilities “may actually benefit from coronavirus,” he said.

One stock that analysts like is Algonquin Power & Utilities Corp. (AQN). In a note Friday, Raymond James analyst David Quezada said the recent pullback in Algonquin’s share price “is an opportunity to add to positions in this high-quality, defensive name.”

In raising his price target on Algonquin to US$19 from US$17 and reiterating his “strong buy” rating, Mr. Quezada cited the company’s attractive valuation relative to other mid-cap U.S. utilities, double-digit growth in the rate base (the value of assets on which it earns a regulated return) and projected dividend increases of 10 per cent annually through 2021. Algonquin’s stock closed Friday at US$14.92 on the New York Stock Exchange and $20.40 on the Toronto Stock Exchange, down about 11 per cent and 8 per cent, respectively, over the past five trading days. (Full disclosure: I own AQN shares personally and in my model Yield Hog Dividend Growth Portfolio.)

Algonquin is just one example of a great company whose stock price has been swept lower by coronavirus fears. There are plenty of others. If you’re looking to buy, focus on high-quality stocks and keep your eye on the long term, as always.

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E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to every e-mail but I choose certain questions to answer in my column.

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