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

The S&P 500 it’s still within striking distance of its all-time high, but not all stocks are in the same boat. There are some excellent companies trading 20% ​​or more below their all-time highs despite strong business momentum. Here are two in particular that are both dividend-paying components of the benchmark S&P 500 that you might want to take a closer look at.

A proven winner that could benefit from falling rates

Real estate income (A -0.30%) is a real estate investment trust, or REIT, that owns more than 15,000 freestanding properties, mostly occupied by retail tenants. If you’ve ever been in one general dollar, Walgreensor 7-Eleven, just to name a few examples, there’s a good chance you’ve set foot on Realty Income-owned property.

Realty Income focuses on properties with recession-proof tenants. Its tenants sign long-term leases that obligate them to pay taxes, insurance and maintenance charges and that include annual rent increases.

Over the long term, Realty Income’s dividend has grown very reliably and is yielding just over 5% at the current price. And while rising interest rates are the main reason Real Estate Income is down about 22% from its all-time high, it could be a massive beneficiary as the Federal Reserve begins to lower rates.

Realty Income’s recent rebound illustrates just how much stocks could benefit from falling rates. Just the recent one anticipation of rate cuts and economic data indicating they will happen have sent stocks back 26% from 2024 lows. But as rates begin to fall, it wouldn’t be surprising to see Realty Income’s outperform the market in the near future.

The biggest bank stock on my radar right now

Capital One Financial (COF 2.93%) has performed strongly in 2024 so far, but is still down more than 20% from its record high in 2021. There are some good reasons, such as an increased level of credit card defaults and concerns about US consumer health. Still, Capital One looks like an extremely attractive opportunity, with shares trading 10% below book value, and that’s especially true before the pending acquisition of Discover (DFS 2.74%) is completed.

For starters, Capital One is a very profitable business because of its focus on high-interest credit card products. The net interest margin of 6.7 percent is at least double what other big U.S. banks typically make, and it’s no surprise: The average credit card interest rate is nearly 25 percent right now, according to Lending Tree, and Capital One pays about 4% interest on deposits. Even factoring in operating costs and a reasonable default rate, there is plenty of room for profit.

Buying Discover creates some interesting possibilities. Not only will it increase Capital One’s credit card portfolio, but Capital One will also own a payment network, making it less dependent on companies like Visa and MasterCard. It could even act as a third-party payment processor for other financial institutions.

To be clear, the nature of Capital One’s business makes it one of the most cyclical bank stocks. But if you believe we’ll get an economic “soft landing” and avoid a recession, Capital One could be a steal at its current price.

Buy for the long term

While I think both stocks have some major near-term catalysts like interest rates and the pending Discover acquisition, I don’t know what their stock prices will do over the next few months. Both are excellent, well-run businesses that should make great long-term investments. Invest accordingly.