3 Great S&P 500 Dividend Stocks Down 25%, 60% and 26% to Buy and Hold Forever

If you’re looking at dividend stocks as a source of income, quality clearly matters. But timing can also play a role in how much income these investments bring you. The lower the price of these shares, the more shares you can buy and the higher your effective return.

In other words, you get more money when you buy dividend stocks while they’re trading at a discount.

With that as a backdrop, here’s a closer look at three of the S&P 500Top dividend payers that are currently for sale. Any or all of these would be solid additions to most income investor portfolios.

Thirty years ago, major pharmaceutical names like Merck (NYSE: MRK) they were titans The new science had laid the groundwork for a golden age, giving every big name in the business at least one blockbuster drug, plus a potential blockbuster or two in each company’s pipeline. For Merck, these leading products were Singulair, Januvia and Vioxx.

The industry, however, has changed since then. It’s busier and therefore more competitive. That’s why these companies aren’t growing their top lines as quickly as they used to. Nor is Merck an exception to this dynamic. That’s why its shares have generally underperformed the S&P 500 over the past 20 years.

Just don’t lose perspective.

While the company’s glory days may be in the rearview mirror, what this company lacks in growth firepower it makes up for in reliable earnings that in turn support a dividend that has grown every year during the last 14 years. Merck is simply leveraging its large size to develop new drugs or acquire them. For example, its current best-selling cancer drug, Keytruda, was actually the prize for the acquisition of Schering-Plough in 2009. And now that Keytruda’s commercial success is ending at least in sightis paying Chinese biotech LaNova Medicines for the rights to its development cancer therapy currently in phase 1 trials.

This is the new norm within the medical world, and Merck is navigating it well, if not explosively. Better yet, with the stock now down 25% from its June high, the newcomers will come in with a future dividend yield of nearly 3.3%.

It cannot be denied Nike‘s (NYSE: NE) fall from grace

The sportswear brand’s stock was soaring in the heart of the COVID-19 pandemic, fueled by consumers’ affinity for its products (and its sneakers in particular). Then it all fell apart. Thanks to a combination of supply and distribution issues, evolving consumer preferences, economic lethargy and a perceived lack of innovation, Nike’s business hit a wall in 2022. Ditto for the stock, which is now down roughly 60% from its late-2021 high and still knocking on the door to lower lows.

The sellers, however, probably overshot their target.

That doesn’t mean Nike is completely out of the woods just yet. Revenue for the quarter ending in February is expected to fall 11% year-on-year, contributing to a 10% drop in sales for the full year. Footwear remains the biggest friction, here and abroad.

However, things are changing for the better. In October, former Nike executive Elliott Hill joined the company as CEO, initiating a reset of most of the organization’s operations. That same month the company moved Tom Peddie to the role of vice president and general manager of the important North American market. His top priority is still the same. That’s rebuilding the wholesale relationships Nike abandoned a few years earlier as the company expanded its own direct-to-consumer ambitions … a task it first took on in July, when it returned to be vice president of market partners.

There is still work to be done. However, stocks tend to move predictively rather than reactively. Assuming Hill and Peddie and all the changes they’re working on come to fruition, Nike stock could and should improve sooner rather than later. Meanwhile, the prospective dividend stands at a respectable 2.2%.

That’s a dividend, by the way, which has now been collected 23 years in a row.

Last but not least, add PepsiCo (NASDAQ: PEP) to your list of low dividend stocks to buy. Its shares are now priced 26% below their mid-2023 peak, pushing the expected dividend yield to an impressive 3.8%.

The reason for the prolonged withdrawal of this action is not difficult to ascertain. Eventually, inflation caught up. Revenue is essentially flat so far; total year-to-date volume is also down. Price increases have led consumers to consider more affordable snack and beverage options. It’s a dynamic that most investors aren’t used to seeing trouble with this stalwart company, hence the sharp pullback in the stock.

Just don’t get so fixated on the past that you can’t see the plausible future or even the present. Things are looking better here. For example, the Bureau of Economic Analysis reports that U.S. personal consumer spending growth between August and November held reliably between 2.1% and 2.4%, in line with revenue growth. And while inflation rates are no longer cooling, they are stabilizing in that same range. In addition, households can still save at least a small portion of their monthly income.

And what? It just means that money is not as tight as it felt a year ago, nor will it be as tight as it seemed to be a year from now. Not only will PepsiCo enjoy a bit more pricing power for the foreseeable future, but its own cost increases are also shrinking.

It remains to be seen when other investors will start connecting these dots. But it looks like it will happen sooner rather than later.

The best: With 52 consecutive years of annual dividend growth under its belt, you’d be hard-pressed to find a stock with a stronger dividend pedigree.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Merck and Nike. The Motley Fool has one disclosure policy.

3 Great S&P 500 Dividend Stocks Down 25%, 60% and 26% to Buy and Hold Forever was originally published by The Motley Fool

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