3 Magnificent S&P 500 Dividend Stocks Down 43%, 20%, and 53% to Buy and Hold Forever
6 Mins Read
Like bargains? Need dividends? No problem. Several of the S&P 500‘s stocks fit both bills at this time, with a bunch of them boasting the makings of a true “forever” holding. Here’s a rundown of three of these best bets right now.
There’s no denying that Pfizer(NYSE: PFE) isn’t quite the pharmaceutical powerhouse it used to be. The loss of patent protection on its blood thinner Lipitor in 2011 was a blow it never quite got over, but it would also be naïve to believe the company’s research and development (R&D) and acquisitions are as strong now as they were in the past. The drugmaking business has also seemingly become even more competitive in the meantime.
That’s why, after a burst of bullish brilliance during and because of the COVID-19 pandemic (Pfizer’s Paxlovid was an approved treatment), this stock’s peeled back 53% from its late 2021 peak.
The long-awaited winds of change are finally blowing, even if in a way that feels more disruptive than helpful. Activist investor Starboard Value is shaking the chains, so to speak, calling Pfizer out for its failures on the drug-development front and the acquisition front. Starboard specifically points out that 2023’s $43 billion acquisition of oncology company Seagen has yet to show meaningful benefit given its high cost, and adds that Pfizer’s failed to turn the 15 drugs it was touting as potential blockbusters in 2019 into those major moneymakers.
In CEO Albert Bourla’s defense, the coronavirus contagion slowed R&D for most pharmaceutical companies, if only by complicating the logistics of drug trials. Nevertheless, Starboard makes several fair points.
But what does this mean for current and prospective shareholders? While it’s typically better when any organization recognizes its own weaknesses and implements much-needed changes, Starboard Value’s involvement should still drive this overdue overhaul.
Nothing about this drama changes anything about Pfizer’s dividend, by the way. It’s not only paid one every quarter like clockwork for years now, it’s also raised its net annual payment for 15 years in a row. This streak isn’t in any real jeopardy, either.
Newcomers will be plugging into the stock while its forward-looking dividend yield stands at 5.8%.
There’s a decent chance you’ve never heard of Realty Income(NYSE: O). Don’t let its lack of notoriety fool you. This $55 billion S&P 500 constituent is here to stay, and thrive.
Realty Income is a landlord. It’s structured as a real estate investment trust, or REIT. REITs are investments that trade like stocks, but pass along the bulk of any rental profits generated by that REIT’s underlying real estate portfolio. It’s an easy way for investors to be in the rental real estate business without the usual hassle of buying, selling, finding tenants, and performing maintenance on a property.
There are all kinds of real estate investment trusts, ranging from office buildings to apartment complexes to hotels. Even by REIT standards, though, Realty Income is a bit unusual. Its specialty is retail space.
This potentially raises red flags. The brick-and-mortar retailing industry is largely on the defensive, contending with the rise of online shopping. Don’t be too rattled, though. Realty Income’s tenant list includes the likes of Walmart, FedEx, and Dollar General, just to name a few. These are major companies with staying power, in addition to their vested interest in staying put once they’ve established brick-and-mortar roots.
That’s what this REIT’s numbers say, anyway. Even with the COVID-19 pandemic picking off retailers en masse in 2020, Realty Income’s occupancy for the year held at 97.9%.
Those aren’t the only numbers that make a strong bullish argument for owning this dividend payer that’s currently yielding (on a forward-looking basis) just under 5%. Not only has Realty Income paid a dividend every month — yes, a monthly dividend — for the past 54 years, it has also raised its payouts every quarter for the past 27 years.
Last but not least, add Franklin Resources(NYSE: BEN) to your list of S&P 500 dividend stocks to buy. It’s down 43% from its 2021 post-pandemic peak, and lower by a whopping 65% from its record high reached in late 2013. That weakness has pumped its forward-looking dividend yield up to a healthy 6%.
Investors may be more familiar with the outfit than they realize. This is the company behind Franklin Templeton mutual funds, although it operates several other profit centers beyond the Templeton brand. Technological solutions, alternative lending, and real estate are all within its wheelhouse.
Anyone who’s kept tabs on this company likely knows that it hasn’t always been a stellar performer. While certainly respected within the investment management industry, Franklin struggled to hold on to investors’ money in 2015 and 2016. You may recall that the market had been soaring for some time then, and investors were looking for performance beyond what this investment manager could offer.
Much has changed since then, however. Namely, through a few strategic acquisitions like last year’s purchase options-trading technology company volScout, this mutual fund giant can now deliver more of what investors — individual as well as institutional — are clamoring for.
It’s not exactly easy to see the upside yet. The 2022 bear market that followed the pandemic’s wind-down has made it difficult to determine exactly how much business this company should be doing, and how much profit it should be producing. It’s only easy to see that profit margins still appear to be crimped right now.
Even so, the investment management’s dividend has grown every year for the past 44 years. Given that the bulk of its revenue is driven not by its funds’ performances but by fees based on a percentage of the assets it’s managing, the cash flow it needs to maintain these payments is actually rather secure.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx, Pfizer, Realty Income, and Walmart. The Motley Fool has a disclosure policy.
