3 Remarkable S&P 500 Dividend Stocks down 62%, 63%, and 64%: Ideal Picks for Long-Term Investment

• After several years of subpar results, retailer Target is primed for a rebound in more discretionary-minded spending.

• Pharmaceutical giant Pfizer’s post-pandemic hangover may finally be about to abate.

• PepsiCo shares’ prolonged weakness makes sense, but the future looks more promising than the recent past.

• 10 stocks we like better than Target.

Economic Outlook and Investment Strategy

With China and the United States finally engaging in discussions about tariffs, there is a glimmer of hope on the macroeconomic horizon. Investors might want to maintain a defensive posture, as uncertainty remains about the future. This strategy involves reducing exposure to high-risk growth stocks while increasing holdings in dividend-paying stocks that can provide stable cash flow, regardless of the economic environment.

A Closer Look at S&P 500 Dividend Stocks

Given the current economic backdrop, let’s explore three solid S&P 500 dividend stocks that have been undervalued, resulting in dividend yields that are too attractive to ignore.

Target’s Performance Post-Pandemic

There’s no denying that Walmart stock has outperformed Target (NYSE: TGT) since the pandemic’s effects began to stabilize in 2021. While Walmart’s shares are approaching record highs from February, Target’s stock is hovering near a five-year low. The contrasting performances speak volumes about the differing strategies of the two retailers. Target’s focus on higher-end offerings hasn’t resonated as much in a climate where consumers are prioritizing budget-friendly essentials amidst rising inflation.

However, trends change. The absence of substantial recessionary pressures suggests forthcoming economic growth may reignite demand for Target’s premium products. In fact, recent indicators point toward a potential recovery. Despite the prevailing skepticism, Target exceeded revenue and earnings forecasts for the quarter ending in early February, with same-store sales showing a modest 1.5% increase. While this isn’t earth-shattering, it indicates the early stages of a much-needed turnaround after a series of disappointing sales. Analysts expect revenue to grow by almost 3% next year, along with earnings, marking a significant improvement for this struggling retailer.

Pfizer’s Path to Recovery

Meanwhile, the pharmaceutical giant Pfizer (NYSE: PFE) has faced its share of challenges in the wake of the pandemic. The company’s stock has plummeted by 64% from its peak during the pandemic, primarily due to declining sales of its COVID-19 vaccine, Comirnaty, and antiviral treatment, Paxlovid. Pfizer has struggled to offset this nearly 40% drop in total sales with other products in its range, leading to a prolonged downturn.

However, hope may be on the horizon as Pfizer’s prolonged lull seems to be coming to an end. The development pipeline holds significant promise, with 108 drug candidates currently in trials. Among these candidates, 30 are in late-stage development, ready for potential FDA approval. The company’s recent acquisition of Seagen further strengthens its oncology portfolio, presenting opportunities in a highly lucrative market for effective cancer treatments.

Pfizer is also tightening its financial reins after a period of laxity during the pandemic. The company plans to cut $1.7 billion in costs over the next two years, contributing to an overarching goal to reduce expenses by a total of $7.7 billion from 2023 through 2027. In the context of last year’s $63.6 billion in sales and $17.7 billion in adjusted net income, maintaining the dividend appears secure, offering investors solace amidst the doubts about top-line growth in the coming years.

PepsiCo’s Challenges and Opportunities

Adding to the list of noteworthy S&P 500 dividend stocks is PepsiCo (NASDAQ: PEP), currently available at a bargain price. Interestingly, although PepsiCo and Coca-Cola are competitors, their stock performances have diverged significantly in recent years. While Coca-Cola has consistently reached new heights since 2022, PepsiCo’s stock has experienced a decline of 64% from its late 2021 peak, continuing to generate new lows.

This decline can’t be attributed solely to last month’s revised profit guidance. The struggles began well before that, underscoring deeper issues. PepsiCo’s portfolio includes snack brands like Frito-Lay and Quaker Oats, both experienced challenges from rising costs. For instance, Frito-Lay faced a decline in revenue last year, with price increases impacting sales volume, while Quaker reported a significant 14% drop in total volume.

Despite the current headwinds, past performance is not always indicative of future results. Analysts forecast a recovery in both sales and earnings, starting next year and continuing through 2027, given PepsiCo’s strong brand collection. The stock presently boasts a dividend yield of 4.3%, reflecting a history of 53 consecutive years of dividend increases.

Choosing Investment Wisely

As you weigh your options regarding Target, consider this: the Motley Fool Stock Advisor team has highlighted what they believe are the ten best stocks for investors to consider right now, and Target is not among them. According to their analyses, these selected stocks hold the potential for substantial returns in the coming years.

Two historical examples highlight the effectiveness of their picks: when Netflix made the list on December 17, 2004, an investment of $1,000 would have grown to an astonishing $613,951 by now. Similarly, an early investment in Nvidia from the same advisory on April 15, 2005, would have grown to $796,353. The average return for Stock Advisor is an impressive 948%, significantly outperforming the S&P 500’s 170% return.

Final Thoughts

In today’s volatile market, understanding investor sentiment, economic conditions, and company fundamentals is crucial. With careful analysis and strategic choices, there are opportunities for substantial long-term returns, particularly in the context of dividend stocks that have encountered undeserved setbacks. Investors should remain alert and ready to seize the potential for recovery in these undervalued stocks.