A Bull Market Is Here: 2 Magnificent S&P 500 Dividend Stocks Down 50% and 61% to Buy Right Now

The stock market performed strongly in 2024, with S&P 500 the index climbing about 20% on that stretch. On the other hand, not every company included in the benchmark index was a big winner this year.

Following recent pullbacks, some promising S&P 500 companies have been pushed down to attractive valuations. And for a few dividend-paying companies in the index, the recent selloff has boosted their yields as well.

If you’re looking for stocks that can generate passive income and capital appreciation, read on to see why these fool.com contributors think investing in NIKE (NKE 0.06%) and Bath and body works (BBWI 2.05%)two S&P 500 dividend stocks down, would be a magnificent move right now.

Having what it takes to be a long-term winner

Keith Noonan (Nike): It’s been a tough year for Nike. China’s growth bets have not paid off, and performance on this front is unlikely to improve significantly in the near term.

Making matters worse, the athletic footwear and apparel company faced new challenges due to increased competition in the US and Europe and store closures for key retail partners including Foot Lockercreates more headwinds.

With its latest guidance update, Nike said it expects sales to fall about 10 percent year-over-year in the first quarter of its current fiscal year (ended Aug. 31). Meanwhile, management expected sales for the full fiscal year to fall by single digits.

The company’s share price is down about 18% year-to-date on the challenging outlook and is trading 50% off its lifetime high.

The strong selloff pushed Nike’s dividend yield to around 1.7%, above the S&P 500 average. The yield may not look high compared to some companies in the benchmark, but there’s a good chance it will continue to increase payments at above-average rates.

With the latest dividend increase, the company raised its payout by 9%. It’s up 51% over the past five years and 164% over the past decade, and is likely to serve up another substantial dividend increase this fall.

Of course, short-term payout increases won’t mean much to investors if the company can’t get out of the challenges and return to growth. But there are good reasons to bet on this beaten-down industry leader.

The company still has one of the strongest brands in the world, along with infrastructure and distribution advantages that are unmatched in its industry. If you’re looking for attractively valued dividend stocks that are capable of delivering big gains over the long term, Nike looks like a smart buy right now.

A sweet smelling ATM

Anders Bylund (Bath and Body Works): This personal care and home goods company might not look like an exciting investment these days, but Bath & Body Works presents a compelling investment opportunity. The company, formerly known as L Brands, has split Victoria’s Secret (VSCO 0.93%) in 2021 to focus on the Bath & Body Works brand. Its sales have been steady for the past three years.

But I’m not looking for a meteoric rise story here. If you want generous dividends backed by robust cash flow, Bath & Body Works delivers on both counts.

It pays quarterly dividends of $0.20 per share, adding up to $0.80 in annual dividends. This results in a yield of 2.7% at current share prices. By comparison, the average return among S&P 500 stocks is just 1.5%.

Moreover, the stock appears deeply undervalued. Bath & Body Works has some of the highest profit margins in the specialty retail industry, ahead of market darlings such as The ultimate beauty (ULTA -0.52%) and Five below (FIVE -2.52%). The company is also an efficient ATM, turning 9% of its revenue into free cash flow.

However, its shares are changing hands at a downright dismal valuation of 7.7 times trailing earnings or 0.9 times sales. The stock chart shows a 39% drop in price from its 52-week highs since early June and a 61% drop from its lifetime peak.

By the way, I’m not alone on the pink side of the fence. Bath & Body Works comes with a consensus rating of Buy from Wall Street analysts, with an average price target of 48% above current levels.

Even short sellers stay away from this stock. Only 4.1% of its shares are sold short right now, well below Ulta’s 6.9% interest and Five Below’s 8.3%. Don’t even get me started on Victoria’s Secret, whose stock comes in at a risky 11.4% reading in this metric.

So you can lock in that sweet dividend yield at a low share price today, which should also set you up for robust price gains in this bull market. This is a win-win in my book.