2 Magnificent S&P 500 Dividend Stocks Down 20% to Buy and Hold Forever

It can be hard to find a good dividend stock when the broader market is yielding 1.3%. But you can do it if you’re willing to look hard enough. A good place to start is with underperforming stocks such as Archer-Daniels Midland (NYSE: ADM) and UPS (NYSE: UPS). Both have historically high yields today.

Archer-Daniels Midland is back to normal

Archer-Daniels Midland, commonly referred to by its ticker ADM, has a dividend yield of 3.4% today. This is more than twice the level S&P 500 index and notably well above the stock’s 10-year average return of around 2.7%. The reason for the high return is, as the chart below shows, because of a significant decline in the share price. This year alone, ADM is down over 18%.

The good news is that ADM has a huge agricultural commodity processing and handling business. It is an entrenched giant in the industry with a market capitalization of $28 billion. Since it is an integral part of the global food chain, its business is practically a necessity. And given its size and reach, it would be difficult to displace ADM’s operations, giving it a protected market position.

The bad news is that the ADM market is commodity-based, so its top and bottom results can vary greatly from year to year. The stock is down today as commodity prices pull back from a huge post-coronavirus pandemic peak. Investors react to excessive commodity volatility by selling stocks, even if the business is just returning to a more normal level.

In fact, if you think in decades rather than days, ADM’s entrenched position in the industry means its business remains well-positioned for success. Notably, the company has increased its dividend for about five decades, suggesting it’s still a reliable dividend stock.

Given its historically high yield, Archer-Daniels Midland is worth a closer look for investors looking to buy and hold good companies for the long term.

UPS is trying to take off again

UPS’s dividend yield is approximately 5.1%. That’s about four times the return of the S&P 500. The return is also significantly above the 10-year average return of about 3.1% for the stock. Like ADM, the reason for the high historical return is a dramatic pullback in the stock, as the chart below highlights. The decrease since the beginning of the year is almost 18%.

The good news is that UPS is one of the two largest package delivery services in the US (it has a market cap of over $110 billion) and has an entrenched position in the industry globally as well. Its logistics network, which includes a vast collection of sorting warehouses, planes and trucks, would be difficult to replicate. And while Amazon (NASDAQ: AMZN) has increasingly developed its distribution capabilities, still makes extensive use of UPS services. For now, Amazon is more of a partner than a threat. In fact, this relationship shows how hard it would be to simply cut UPS out of the package delivery picture.

The bad news is that UPS’s business has gotten a little bloated, and while Amazon hasn’t replaced the company, its domestic distribution efforts have been a bit of a headwind. UPS responded by working to slim down while refocusing on better niche markets such as medical supplies. The effort was a bit rocky, with second-quarter 2024 earnings weaker than investors expected on both the top and bottom lines. But the volume of packages handled by UPS has increased after a series of declines following the peak in demand due to the coronavirus pandemic. So the quarterly update wasn’t bad at all.

Given the roughly 15-year streak of annual dividend growth here and the generous yield, long-term investors should probably take a glass-half-full approach to the stock. It’s the kind of entrenched industry giant you’ll be happy to buy and own for decades.

Every company goes through tough times

No business rises in a straight line — they all zig and zag with good times followed by bad times and vice versa. Often the best time to buy a stock is when it’s experiencing a bit of headwinds, which is the case for both ADM and UPS right now. But the key for each is that they have enormous businesses that would be hard to replace, giving each long-term staying power. In time, both are likely to weather their current headwinds while continuing to reward dividend investors who are willing to shed some near-term uncertainty.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.

2 Magnificent S&P 500 Stocks With Dividends Down 20% to Buy and Hold Forever was originally published by The Motley Fool