If you're looking at dividend stocks as a source of income, quality obviously matters. But timing can also affect how much income these investments bring you. The lower these stocks are priced, the more shares you can buy and the higher your effective yield.
In other words, you get more for your money when you buy dividend stocks when they're trading at a discount.
With that as a backdrop, here’s a closer look at three of them S&P 500 IndexTop dividend payers currently on sale. Any or all of these would be a solid addition to most income investors' portfolios.
Thirty years ago, major drug names such as Merck (NYSE: MRK) It's a Titan. New science laid the foundation for a golden era, providing all the big names in the industry with at least one blockbuster drug, and every company had at least one or two potential blockbuster drugs in its pipeline. For Merck, these leading products are Singulair, Januvia and Vioxx.
However, the industry has changed since then. It's more crowded and therefore more competitive. That's why these companies' revenue isn't growing as fast as it once was. Merck is no exception. That's why its shares have generally underperformed the S&P 500 over the past 20 years.
Just don't lose perspective.
While its glory days may be behind it, what the company lacks in growth firepower it makes up for with reliable earnings, which in turn has supported a dividend that has grown every year for the past 14 years. Merck simply uses its massive scale to develop or acquire new drugs. For example, the current best-selling anti-cancer drug Keytruda is actually the result of the 2009 acquisition of Schering-Plough. And, now that Keytruda's run of huge commercial success is at least coming to an end, it's paying Chinese biotech LaNova Medicines for the rights to its developmental cancer treatment, which is currently in a Phase 1 trial.
This is the new norm in medicine, and Merck has navigated it well, if not explosively. Even better, with the stock now down 25% from its June peak, new entrants are stepping in with a forward dividend yield of nearly 3.3%.
undeniable Nikeof (NYSE: NE) Fall from grace.
The athletic apparel brand's stock price soared and even soared during the heart of the COVID-19 pandemic, fueled by consumer affection for its merchandise, especially its sneakers. Then everything unraveled. Nike's business struggled in 2022 due to a combination of supply and distribution disruptions, changing consumer preferences, a sluggish economy and a lack of innovation. The same goes for the stock, which is currently down about 60% from its late 2021 peak but still hitting lower lows.
However, the sellers arguably exceeded their goals.
That doesn't mean Nike is completely out of the woods. Revenue for the quarter ending in February is expected to fall 11% year over year, resulting in full-year sales falling about 10%. Footwear remains the biggest drag, both at home and abroad.
However, things are looking up. In October, former Nike executive Elliott Hill rejoined the company as CEO and began a sweeping reorganization of much of the company's operations. That same month, the company appointed Tom Peddie as vice president and general manager of its all-important North American market. But his priorities remain the same. It's rebuilding wholesale relationships that Nike abandoned a few years ago as the company expanded its own direct-to-consumer ambitions... a task he first took on when he returned as vice president of marketing partnerships in July.
There is still work to be done. Still, stock movements tend to be predictive rather than reactive. Assuming Hill and Peddie and all the changes they're working on succeed, Nike stock could and should turn around soon. At the same time, the forward dividend reached a respectable 2.2%.
That's the dividend, by the way, and it's now been 23 consecutive years of dividend increases.
Last but not least, add Pepsi (NASDAQ:PEP) onto your list of beaten-down dividend stocks to buy. The company's shares are currently trading 26% below its mid-2023 highs, and the dividend yield is expected to rise to an impressive 3.8%.
The reasons for the stock's extended pullback aren't hard to figure out. Inflation has finally caught up with it. Year-to-date, revenue is essentially flat; year-to-date total sales are also down. Rising prices are prompting consumers to consider more affordable snack and beverage options. Most investors are just not used to seeing this stalwart company in trouble, so the stock fell sharply.
Just don't get so caught up in the past that you lose sight of a reasonable future, or even the present. Things are looking better here. For example, the Bureau of Economic Analysis reported that U.S. personal consumption spending growth reliably held between 2.1% and 2.4% between August and November, in line with income growth. And, while inflation is no longer cooling, it remains stable in the same range. Furthermore, households are still able to save at least a small portion of their monthly income.
so what? It just means money isn't as tight as it was a year ago, and it won't be as tight as it will seem a year from now. Not only will PepsiCo have more pricing power for the foreseeable future, but its own cost growth is also muted.
It remains to be seen when other investors start connecting the dots. But it feels like it will happen sooner or later.
What's more: You'd be hard-pressed to find a stock with a stronger dividend pedigree, thanks to the company's 52 consecutive years of annual dividend increases.
Before buying PepsiCo stock, consider the following factors:
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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Merck and Nike. The Motley Fool has a disclosure policy.
3 Great Stocks With S&P 500 Dividend Drops of 25%, 60%, and 26% to Buy and Hold Forever Originally published by The Motley Fool