3 Magnificent S&P 500 Dividend Stocks Down 30% (or More) to Buy and Hold Forever

To be fair, it doesn’t take a lot to offer a higher yield than the 1.3% investors are collecting today from the S&P 500 index. And yet investors looking for down-and-out stocks with high yields will still like what Realty Income (NYSE: O), Franklin Resources (NYSE: BEN), and Hormel Foods (NYSE: HRL) have to offer. But the story behind each stock is much bigger than just an attractive dividend yield.

1. Realty Income is the net-lease giant

Realty Income has an investment-grade balance sheet and has increased its dividend annually for 29 consecutive years. It has the largest market cap and property portfolio (over 15,400 assets) among net-lease real estate investment trusts (REITs). Net leases require the tenant to pay most property-level expenses.

And the dividend yield is near a 10-year high at 5.5%. So why is the stock price down roughly 30% from its 2020 highs?

The answer: Interest rates have risen, which puts pressure on the profits that REITs can generate. That makes sense, given that the industry is heavily reliant on debt to fund asset purchases.

But property markets have historically adjusted to rate changes, and it is likely that the same thing will happen this time around, too. Meanwhile, Realty Income has a portfolio that spans the United States and Europe, providing multiple levers for growth.

And its size has historically provided it with advantaged access to capital, regardless of market conditions. In other words, it is the kind of stock a conservative dividend investor could buy and happily hold for decades.

2. Franklin Resources ebbs and flows with the market

Franklin Resources ended the first quarter of 2024 with roughly $1.6 trillion in assets under management. As an asset manager, it earns a percentage fee for overseeing all of that money.

Although investors put money into and pull money out of the market all the time, asset management companies generally have pretty sticky customer bases. The bigger impact usually comes from the ups and downs of the stock market.

For example, in the first quarter, assets under management rose about 16% from year-end 2023 levels. The main driver was an advance in stock prices. You have to go in understanding that Franklin Resources’ financials will ebb and flow along with the market.

That said, the company has increased its dividend annually for 44 consecutive years. And while mutual funds have been facing increased outflows, Franklin Resources is expanding its reach into other areas to offset the impact.

That notably includes exchange-traded funds and so-called alternative investments. Concerns about the mutual fund division, however, have left investors sour on the company’s stock, pushing it down roughly 35% since late 2021. That has pushed the dividend yield up to nearly 5.3%.

But if you can handle some earnings volatility, this asset manager has proved it knows how to reward investors and grow its business over time.

3. Hormel is starting to gain some traction

Hormel Foods stands out on this list because it is a Dividend King, with 58 consecutive years of annual dividend increases behind it. A stock price decline of around 35% from recent highs in 2022 has pushed the yield up to 3.2%.

That’s not necessarily high on an absolute level, but it is near the highest levels in the company’s history. Wall Street has put this reliable consumer-staples dividend stock on the sale rack.

There are real problems here, including inflation, avian flu, a slow rebound in China, and the acquisition of Planters just as the nut segment of the snacking sector started to slow down.

Taken together, these problems are ugly, but each of them is surmountable if you look at them individually. Given the long history of success at Hormel, it seems reasonable to give management the benefit of the doubt.

Meanwhile, the company’s fiscal first-quarter earnings results were fairly strong across the board, suggesting that Hormel is starting to regain its footing. Buying the stock now could lock in a historically attractive yield from an iconic and generally conservatively-run consumer staples company for years to come.

Act while the opportunity lasts

There’s probably no rush for investors to buy Realty Income, Franklin Resources, or Hormel. But don’t let that lull you into inaction. Take a little time to get to know these reliable dividend stocks and pick the ones — perhaps all of them — that fit best with your portfolio. In the end, given their attractive yields, it would be better to be about right and lock in the yields than to try to time the perfect entry point.

Should you invest $1,000 in Realty Income right now?

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Reuben Gregg Brewer has positions in Hormel Foods and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

3 Magnificent S&P 500 Dividend Stocks Down 30% (or More) to Buy and Hold Forever was originally published by The Motley Fool

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