Magnificent S&P 500 Dividend Stocks Down 33% to 40%
Dividend stocks offer a consistent income stream for investors, especially during economic uncertainty. Companies with a history of increasing payouts can be particularly attractive. A dip in a stock's price can create opportunities for higher dividend yields, offering potential upside for patient investors. This article highlights three S&P 500 dividend-paying stocks that have experienced significant declines, potentially making them attractive buys.
Understanding Dividend Yields
A dividend yield is calculated by dividing a company's annual dividend payout by its current share price. For example, a stock priced at $80 with a $4 annual dividend (paid quarterly at $1) has a 5% yield. If the stock price falls to $60, the yield increases to 6.7% (4 / 60 = 0.067). Therefore, lower stock prices generally boost dividend yields, assuming the company maintains its dividend payout.
1. United Parcel Service (UPS)
United Parcel Service (UPS) has seen its stock price decline by approximately 33% year-to-date, resulting in a dividend yield of around 7.8%. An investment of $5,000 in UPS could potentially generate roughly $390 in annual income. The stock's decline can be attributed to economic uncertainties impacting online shopping and UPS's reduced business with Amazon.com. Despite these challenges, the e-commerce sector remains robust, and UPS's forward-looking price-to-earnings (P/E) ratio of 11.3 is below its five-year average of 15.8, suggesting potential undervaluation.
2. Target (TGT)
Target (TGT), a well-known retailer with significant annual sales and a large number of stores and employees, has experienced a stock price decline of about 35% year-to-date. This decline is partly attributed to a decision to shift its diversity, equity, and inclusion (DEI) policy, and partly due to previous supply chain issues. While these challenges might be temporary, investors should assess their potential impact. Target's dividend yield is approximately 5.3%, and when factoring in share repurchases, the total yield for shareholders is around 8.02%. The dividend has grown at an average annual rate of 8.8% over the past decade. With a recent forward P/E ratio of 11.8, significantly lower than the five-year average of 16.2, the stock may be undervalued.
3. Constellation Brands (STZ)
Constellation Brands (STZ), a producer and marketer of alcoholic beverages including Corona and Modelo, has seen its stock fall by 40% year-to-date, pushing its dividend yield to 3.1%. Coupled with recent share buybacks, the company's total return to shareholders is closer to 8%. The decline in stock price is attributed to decreasing drinking rates among young people and tariffs impacting Hispanic consumer spending. Constellation Brands is focused on higher-end brands and cost reduction to improve its performance. Its forward P/E ratio of 11.3 is considerably lower than the five-year average of 18.2, indicating potential undervaluation.
These three stocks offer potentially attractive dividend yields due to recent price declines. While each company faces its own unique challenges, they also possess the potential for future growth and recovery. Investors should conduct thorough research to determine if these stocks align with their investment goals.
