When the market sells off dramatically, as it did in April 2025, it can be hard to see the silver lining. And indeed, if all your money is invested in aggressive stocks , losing 20% or more of your account value in a few weeks can be tough to swallow. But if you are an income investor with some investable cash on hand, a market selloff can actually translate to a boost in income.

How’s that possible? Read on to learn how it all works .

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Share Prices and Dividend Yields

When stock share prices fall — all other things being equal — dividend yields rise. This doesn’t affect the amount you’ll receive if you already own a stock, but if you’re just getting into the market, or if you have some additional investable capital, you can take advantage of the new, higher yield.

Here’s an example. Imagine Stock ABC trades at $100 per share and pays a $4 per share annual dividend. That gives the stock a dividend yield of 4%.

Say the stock falls 20% in a market selloff. That means it would trade at $80 per share. But the company would still be paying that same $4 per share dividend. That boosts its yield for new purchasers to 5%.

If you’ve been waiting to get into the market, or if you have more money to invest, this means that the market drawdown actually works to your advantage. That 20% selloff in the stock translates to a 20% boost to your income. Instead of having to pay $10,000 to earn $400 in annual income, now you’ll just need $8,000 to earn that same $400.

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Another Option: Reinvestment

Some investors are fully invested at all times, meaning they are 100% allocated to various assets and don’t have any cash reserves on hand. This makes it harder to generate more passive income during a market downturn, as you can’t simply pick up additional shares at lower prices (and higher dividend yields).

However, there’s still a way to potentially boost your income. Most companies and/or brokerage firms now allow the reinvestment of dividends into additional fractional shares of stock. Here’s how it works.

Imagine you own 100 shares of the same Stock ABC. With a $4 per share annual dividend, you’ll receive $100 per quarter in passive income. If you receive that quarterly payout after the stock has fallen to $80 per share, you’ll pick up an additional 1.25 share, increasing your income by $5 per year.

Sure, that doesn’t sound like much, but considering you haven’t had to invest any additional capital to get that extra income, it’s essentially free money. And obviously, the more you have invested, the more your income will increase.

Caveats

Dividends are not necessarily stable. Companies can raise or lower them at any time, at their discretion. It’s possible when a stock drops by 20% or more that a company is having financial problems, making it hard for them to sustain their dividend. This is a scenario that is best avoided, especially for an income investor.

But when the overall market is dropping, dragging down most share prices with it, it’s usually not an indication of a company-specific problem. In this scenario, you don’t generally have to worry about a big dividend cut, especially if you’re dealing with an established, blue-chip company with a long history of paying dividends.

The Bottom Line

Dividends can be a great source of income for investors, as they tend to rise over time and receive special tax treatment as well. When share prices fall, dividend yields rise, allowing investors to take advantage of higher yields if they have extra investable capital. For that reason, a market downturn can actually offer a window of opportunity for investors who are in the position to take advantage of it.

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This article originally appeared on GOBankingRates.com : This Type of Investment Will Earn You More Passive Income During a Market Downturn