3 Magnificent S&P 500 Dividend Stocks Down 22%, 35% and 45% to Buy and Hold Forever

If you insist on buying dividend stocks at a discount, you’re mostly out of luck right now. Although the S&P 500 it’s been uncomfortably volatile since July, is still up more than 30% from its November low and still within sight of record highs. There simply aren’t a lot of bargains to choose from.

There are some worthy prospects, though, if you’re willing to do enough digging.

Here’s a list of three beaten-down S&P 500 dividend stocks you might want to consider scooping up before a bunch of other investors decide to do the same.

1. United Parcel Service

There is no getting around the fact that ending the COVID-19 pandemic has proven challenging for United Parcel Service (UPS 0.11%). Stocks rose on a wave of online shopping, but the return of in-person shopping in 2022 hurt investor sentiment. Economic lethargy and new (and more expensive) labor contracts also get some of the credit for its recent weakness. Overall, UPS shares are now down 45% from their early 2022 peak.

It is arguable, however, that the sellers overshot their target with fears that the troubles would persist longer than originally expected and went deeper into his business.

See, shipments — at least in this company’s important US market — are actually growing. The Institute for Supply Management’s measures of total shipments from manufacturers as well as service providers continue to increase by a few steps from the 2023 break.

US ISM Manufacturing Suppliers Index data by YCharts

Consumers are also doing their part. The e-commerce giant AmazonIts North American business saw a 9% increase in total business last quarter, while its international operations saw growth of nearly 7%.

In a similar but separate vein, the Association of American Railroads reports that total rail traffic in North America is in line with levels seen last year as well as last year, while intermodal rail traffic is higher than it was in the last three years. This has implications for UPS simply because goods shipped in intermodal containers are also the types of goods most likely to end up in the back of a UPS delivery van. Incidentally, while this year will be a bit of a crunch, analysts are calling for United Parcel Service’s revenue to grow nearly 5% next year, leading to even higher earnings growth.

There are stocks with higher growth and higher returns, to be sure. There aren’t many that have the same 5% dividend yield that UPS stock currently has, especially at its relatively low level of risk versus its strong growth prospects.

2. Devon Energy

Devon Energyhis (DVN -1.76%) The forward yield of 4.7% is as juicy as United Parcel Services, but there’s a catch. That is, the payment of this action is not consistent. It ebbs and flows with the company’s ever-changing earnings. If you need reliable and predictable income to pay your recurring bills, this is not the ideal name to start with.

If you’re able to digest erratic dividend income in exchange for above-average income potential, however, this ticker’s 22% pullback from its April peak is an entry opportunity.

Devon Energy is in the oil and gas business. It focuses on onshore projects in the central United States, with five core locations running from South Texas to North Dakota. In the last quarter, it pumped out an average of 335,000 barrels of crude oil and 1.1 billion cubic meters of natural gas each day, more or less equal to its recent output.

The energy business is a difficult one, of course. The market price for oil and gas changes constantly, but the cost of drilling and extracting it does not change nearly as much. That’s why the sector’s profits seem to rise when oil prices are high, but earnings fall when crude prices are even slightly depressed. Devon is no exception to this dynamic.

However, Devon is an exception to most of its oil and gas peers in that it distributes most of its earnings in the form of dividend payments. In that light, it is very much a direct play on the price of oil itself. This is not a bad bet to make either, given that OPEC, ExxonMobiland Standard & Poor’s predict we’ll be using at least as much of the materials in 20 years as we are today.

3. Franklin Resources

Finally, add the investment management outfit Franklin Resources (BEN -1.85%) to your list of S&P 500 dividend stocks to buy and hold forever. Its 35% sell-off since the end of last year has taken the stock to near a four-year low and raised its forecast dividend yield to more than 6%.

Withdrawal has a certain superficial meaning. Investors seem to be increasingly interested in exchange-traded funds (ETFs) or even individual stocks. Traditional mutual funds, such as those that his Franklin Templeton investment company mostly manages, appear to be falling out of favor. (Franklin do what (also manage some ETFs, but that’s not the bulk of its business.)

This assumption, however, ignores several important facts about Franklin Resources.

The first of these realities is that despite the growing interest in ETFs and individual stocks that must have Nvidia or Amazon, people don’t lose interest in conventional funds. Data from the Investment Company Institute shows that U.S. fund companies managed $28.6 trillion in assets at the end of 2022, down slightly from the record in 2021 thanks to the bear market at the time, and on its way to the $33.6 figure since the end of last year. trillion. Most of that money is invested in regular mutual funds rather than exchange-traded funds. Frankin’s total assets under management (AUM) currently stand at $1.66 trillion, surpassing the end-2021 peak of nearly $1.6 trillion.

The other misunderstanding is how the fund management business works. While these companies certainly thrive in bull markets that generate investor interest, mutual funds still charge management fees based on the amount of assets invested, even when their funds underperform. That’s how Franklin managed to hold up so well in 2022, despite the market’s relatively poor performance since then. The key is simply attracting and then retaining investors’ money.

And analysts don’t expect this company to have trouble doing that. They are collectively calling for 7% revenue growth this year, followed by another 6% increase next year, reigniting earnings growth.

Those earnings, of course, support dividend payouts that have grown every year for the past 44 years. You’d be hard-pressed to find a better record than that.