The S&P 500 Just Hit an All-Time High, but These 2 Dow Dividend Stocks Are Buys Near Their 52-Week Lows | The Motley Fool (2024)

Buying beaten-down blue chip dividend stocks can be a great long-term investment strategy.

Not all major indices have performed equally well so far in 2024. Year to date, the Nasdaq Composite is up 22.3%, while the S&P 500 index has delivered a solid 16.7%. However, the Dow Jones Industrial Average is sorely lagging with less than a 5% year-to-date gain.

While it's typical for the Dow to underperform more growth-focused indexes during bull markets, this level of underperformance is a bit surprising considering outsized gains from Amazon, Microsoft, Goldman Sachs, and other large Dow components. Dig deeper, however, and there have been some significant sell-offs in reliable blue-chip stalwarts like UnitedHealth Group and Home Depot.

This could also spell opportunity. My preferred approach is to filter out the noise and focus on a path to recovery rather than getting too caught up in everything that is going wrong at the time. The Dow is a good starting point because many components have strong long-term investment theses.

Year-to-date,McDonald's (MCD -0.35%) is the fourth-worst-performing Dow stock and Nike (NKE 0.04%) has been the worst. Despite some noteworthy obstacles, here’s why both companies stand out as particularly strong buys now.

The S&P 500 Just Hit an All-Time High, but These 2 Dow Dividend Stocks Are Buys Near Their 52-Week Lows | The Motley Fool (1)

Image source: Getty Images.

Nike is in a historic slowdown

Nike is hovering around its lowest level since the COVID-19 pandemic-induced plunge in spring 2020. At first glance, the sell-off seems unwarranted, considering that Nike's sales are close to an all-time high and margins aren't that low.

The S&P 500 Just Hit an All-Time High, but These 2 Dow Dividend Stocks Are Buys Near Their 52-Week Lows | The Motley Fool (2)

NKE data by YCharts

However, the stock market cares more about where a company is headed than where it has been. And unfortunately, Nike has reached a breaking point.

Cracks in Nike's business have been forming for a while now. After the company reported its first-quarter fiscal 2023 earnings in late September 2022, Nike stock tumbled all the way down to $82.22 per share on Oct. 3, 2022. The sell-off was due to falling profit, inflated inventory levels, and challenges with growth out of key markets, including China.

Nike's recent earnings call featured many of the same nagging themes. Revenue growth has ground to a halt -- with sales falling 2% in fiscal 2024. Expectations are even worse for fiscal 2025, with revenue expected to fall mid-single digits. The forecast is particularly bad considering Nike had guided for positive sales growth in fiscal 2025 during the March earnings call.

It's somewhat ironic that Nike's Board of Directors approved a massive $18 billion stock buyback program in June 2022 -- right before problems accelerated. In fiscal 2024, Nike bought back $4.3 billion in stock and paid $2.2 billion in dividends.

Growing the dividend and buying back stock can be an effective way to return capital to shareholders if the underlying business is on solid footing. But in Nike's case, the business is in its worst shape in years, so putting capital to work to help the business improve rather than plugging away at buybacks could be a better move.

Nike isn't showing many signs of turning things around anytime soon, so buying the stock now is really a bet on the brand and Nike's track record rather than where the fundamentals stand today. The glass-half-full outlook on Nike makes the stock a strong buy now. Nike has been hit hard by a one-two punch of tight consumer spending and formidable competition from smaller brands, such as Deckers Outdoor-owned Hoka and On Holding.

However, Nike has overcome competition and economic challenges before, and there's reason to think it can right the ship again. Nike has expanded its e-commerce business and understands that selling directly to consumers opens the door to higher margins and better customer engagement. The more Nike can tap into an omnichannel business model, the higher its margins and revenue growth will likely be.

The dividend yield is up to 1.9% and the forward price-to-earnings (P/E) ratio is down to 23.6 -- which is Nike's highest yield in 15 years and an inexpensive valuation for an industry-leading business. In sum, Nike stock is tumbling for valid reasons and could have more room to fall. But the business could also look far different in three to five years, making now an excellent opportunity to consider buying the stock.

McDonald's is restoring value

Like Nike, McDonald's has been impacted by a price-conscious consumer. McDonald's hiked prices to keep up with inflation, which initially worked. But there's concern that McDonald's has run out of room and needs to remind customers that they can get good value by going to its restaurants. McDonald's last earnings call was chock-full of concern that sales growth is under pressure and the company needs to restore its image.

On June 20, McDonald's issued a press release announcing its "highly anticipated $5 Meal Deal" which includes a McDouble or McChicken sandwich, small fries, four-piece chicken McNuggets, and a small soft drink. It also announced a free medium fry with any $1 purchase every Friday through its app through the end of 2024. Even if McDonald's barely turns a profit on these deals, they could be just what the company needs to boost traffic -- especially as families are out and about over the summer.

McDonald's is best in breed when it comes to returning capital to shareholders. The company has been raising its dividend and buying back stock at a breakneck pace. Over the last decade, McDonald's has more than doubled its dividend while reducing its share count by over a quarter. In October, the company boosted its dividend by 10%, marking the 47th consecutive dividend raise and putting McDonald's on track to become a Dividend King by 2026.

Meanwhile, buybacks have helped accelerate earnings-per-share growth -- making the stock a better value. Over time, buybacks can help earnings per share (EPS) grow faster than net income.

The S&P 500 Just Hit an All-Time High, but These 2 Dow Dividend Stocks Are Buys Near Their 52-Week Lows | The Motley Fool (3)

MCD EPS Diluted (TTM) data by YCharts

In the chart, you can see that McDonald's stock has put up impressive gains over the last decade, with the stock price going up nearly twice as much as net income. But thanks to buybacks, EPS growth has mostly kept up with the stock price, which is why McDonald's P/E ratio is only slightly higher today than it was a decade ago. And in fact, it is currently lower than its historical averages.

The S&P 500 Just Hit an All-Time High, but These 2 Dow Dividend Stocks Are Buys Near Their 52-Week Lows | The Motley Fool (4)

MCD PE Ratio data by YCharts

McDonald's has faced a slowdown in consumer spending and economic cycles before. There's no reason to believe that its current setbacks impact the long-term investment thesis, making McDonald's and its 2.7% dividend yield an attractive opportunity for patient investors.

Nike and McDonald's have fallen far enough

A stock's price can be heavily influenced by short-term factors rather than the company's underlying characteristics or where the business could be three to five years from now. The key is to filter out the noise and decide if these concerns haven't already been reflected in the stock price, or if the stock has been overly punished.

Nike is down over 30% year to date, while McDonald's is down just over 15%. But Nike is admittedly facing greater challenges than McDonald's.

It's impossible to know when either stock will stop selling off, but it is possible to get a good idea for why a stock is selling off. For Nike and McDonald's, it's all about returning to growth while maintaining margins. Given their strategies, I could see both companies focusing more on sales growth in the near term and worrying about margins later. It could take a while for Nike and McDonald's to return to the consistent growth that investors have grown accustomed to, but both stocks have solid dividends and compelling valuations.

One of the best ways to compound money in the stock market is to invest in great companies when they are out of favor and hold shares through periods of volatility. Nike and McDonald's have sold off far enough that they are both worth a closer look now.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nike. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Home Depot, Microsoft, and Nike. The Motley Fool recommends On Holding and UnitedHealth Group and recommends the following options: long January 2025 $47.50 calls on Nike, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The S&P 500 Just Hit an All-Time High, but These 2 Dow Dividend Stocks Are Buys Near Their 52-Week Lows | The Motley Fool (2024)

FAQs

Which stock pays the highest dividend? ›

20 high-dividend stocks
CompanyDividend Yield
Insteel Industries, Inc. (IIIN)8.08%
Alexander's Inc. (ALX)7.52%
Artisan Partners Asset Management Inc (APAM)7.12%
Washington Trust Bancorp, Inc. (WASH)6.94%
18 more rows
3 days ago

What is the S&P 500 dividend yield? ›

S&P 500 Dividend Yield is at 1.32%, compared to 1.35% last month and 1.54% last year. This is lower than the long term average of 1.83%.

What stocks pay more than 6% dividend? ›

10 Highest Dividend-Paying Stocks in the S&P 500
StockTrailing annual dividend yield
Boston Properties Inc. (BXP)6.4%
Crown Castle Inc. (CCI)6.5%
Verizon Communications Inc. (VZ)6.6%
Altria Group Inc. (MO)8.5%
6 more rows
Jun 21, 2024

Are high yield dividend stocks good? ›

A high dividend yield can offer several benefits to investors, including a steady stream of income, which can be particularly attractive for income-focused investors or those in retirement.

What are the three dividend stocks to buy and hold forever? ›

7 Dividend Stocks to Buy and Hold Forever
StockForward yieldImplied upside*
Johnson & Johnson (JNJ)3.3%20.2%
Merck & Co. Inc. (MRK)2.4%8.6%
Chevron Corp. (CVX)4.2%35.9%
Cisco Systems Inc. (CSCO)3.4%49.7%
3 more rows
Jul 12, 2024

How to make $1,000 a month with dividends stock? ›

To have a perfect portfolio to generate $1000/month in dividends, one should have at least 30 stocks in at least 10 different sectors. No stock should not be more than 3.33% of your portfolio. If each stock generates around $400 in dividend income per year, 30 of each will generate $12,000 a year or $1000/month.

What is the highest dividend paying company in the S&P 500? ›

*Market data as of July 17, 2024.
  1. Walgreens Boots Alliance (WBA) Walgreens Boots Alliance operates retail pharmacies across the U.S., Europe and Asia. ...
  2. Altria Group (MO) ...
  3. Verizon (VZ) ...
  4. Crown Castle (CCI) ...
  5. AT&T (T) ...
  6. Bristol-Myers Squibb (BMY) ...
  7. Pfizer (PFE) ...
  8. Healthpeak Properties (DOC)

What is the average return on the S&P 500 dividends? ›

The average yearly return of the S&P 500 is 10.52% over the last 30 years, as of the end of May 2024. This assumes dividends are reinvested. Adjusted for inflation, the 30-year average stock market return (including dividends) is 7.78%.

How to live off dividends? ›

You can periodically sell some of your investments to supplement the dividend income. As long as you keep the withdrawal rate at or below 4%, your money should last for decades. To apply the 4% rule, divide your income requirement by 4% to calculate your targeted portfolio size.

What stock pays the highest monthly dividend? ›

Top 10 Highest-Yielding Monthly Dividend Stocks in 2022
  • What dividends and REITs are.
  • ARMOUR Residential REIT – 20.7%
  • Orchid Island Capital – 17.8%
  • AGNC Investment – 14.8%
  • Oxford Square Capital – 13.7%
  • Ellington Residential Mortgage REIT – 13.2%
  • SLR Investment – 11.5%
  • PennantPark Floating Rate Capital – 10%

What are the safest dividend stocks to buy? ›

The five dividend stocks highlighted in this article—Hershey, Darden Restaurants, Coca-Cola Europacific, NextEra Energy and Essential Utilities (WTRG)—offer compelling investment opportunities. These companies stand out due to their strong fundamentals, consistent dividend payments and attractive valuations.

Which ETF pays the highest dividend? ›

Top 100 Highest Dividend Yield ETFs
SymbolNameDividend Yield
SQYYieldMax SQ Option Income Strategy ETF42.79%
MSTYYieldMax MSTR Option Income Strategy ETF42.58%
ULTYYieldMax Ultra Option Income Strategy ETF41.03%
JEPYDefiance S&P 500 Enhanced Options Income ETF39.67%
93 more rows

Do I pay taxes on dividends? ›

Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.

What is too high for a dividend payout? ›

A payout ratio that is between 75% to 95% is considered very high. It implies that the company is bordering towards declaring almost all the money it makes as dividends. This increases the risk of the company cutting its dividends because our formula is forward looking.

How do you know if a dividend yield is good? ›

What Is a Good Dividend Yield? Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment. Your own investment goals should also play a big role in deciding what a good dividend yield is for you.

What are the 10 best stocks to buy right now? ›

Sign up for Kiplinger's Free E-Newsletters
Company (ticker)Analysts' consensus recommendation scoreAnalysts' consensus recommendation
ServiceNow (NOW)1.49Strong Buy
Assurant (AIZ)1.50Strong Buy
Howmet Aerospace (HWM)1.50Strong Buy
Insulet (PODD)1.50Strong Buy
21 more rows

Which stock gives the highest return in 1 month? ›

Highest Return in 1 Month
S.No.NameCMP Rs.
1.Basilic Fly Stud580.00
2.HMT95.23
3.Marine Electric.263.59
4.Veranda Learning283.00
23 more rows

What are the cheapest stocks that pay the highest dividends? ›

Cheap Dividend Stocks
CompanyCurrent PriceDividend Yield
GROW U.S. Global Investors$2.55 -1.5%3.53%
ABEV Ambev$2.10 -3.7%12.38%
QQQY Defiance Nasdaq 100 Enhanced Options Income ETF$14.28 -0.3%58.82%
NUSB Nuveen Ultra Short Income ETF$25.111.51%
41 more rows

What company has paid a dividend the longest? ›

The York Water Company

The small water utility is the longest-paying dividend stock, having continuously paid dividends for over 200 years since the utility was founded in 1816. The forward dividend rate is $0.84 per share, and the forward dividend yield is about 2.29%.

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