Want to make a lot of money in the stock market without lots of stress? Buy and hold well-established companies that pay and increase dividends year after year. No, this strategy probably won't make you rich overnight. However, these sorts of stocks, called blue chip dividend stocks, are highly likely to still be around years from now, and they can generate significant returns when given enough time.
The thing is, everyone knows these companies and how awesome they are. So, if you want a deal on one, you sometimes need to wait for some adversity to spook the market.
Below are three great companies currently dealing with issues that have dragged their stocks down to attractive prices. You can currently buy a share of each for just $500. Hold them for the long term. They could be the smartest dividend stocks you can buy right now.
1. AbbVie
Shares of drugmaker AbbVie (ABBV 0.99%) have slid over the past several months, partly due to fears about the incoming government administration and its potential effect on the industry. While you can't dismiss this short-term risk, AbbVie has been a staple in the healthcare industry for decades. Formerly part of Abbott Labs, the Dividend King has continued raising its dividend annually since being spun off over a decade ago.
The company has a strong product portfolio, including fast-growing immunology drugs Skyrizi and Rinvoq, Botox (a popular cosmetic injection), and a strong pipeline with five expected regulatory approvals coming this year. The dividend's payout ratio is well-padded at 56% of 2024 earnings estimates. Analysts expect the company to grow its earnings by an average of 8% annually over the next three to five years, so management can easily raise the dividend well into the future.
Today, AbbVie stock trades at a forward price-to-earnings (P/E) ratio under 15. That's a solid deal for a company with 8% expected growth and a dividend yielding 3.5% at its current share price. Investors could realistically expect double-digit total returns over time, which is enough to make patient investors wealthier over the coming years.
2. PepsiCo
Food and beverage companies are dealing with similar political concerns, plus speculation over the effects of GLP-1 agonist weight loss drugs. This has put PepsiCo (PEP -0.37%) on a steady slide in recent months. The market can get fearful and greedy at times, and in PepsiCo's case, it seems the pendulum has swung a little too far toward pessimism. The company has felt softer sales in recent quarters, but that's arguably as much about pricing and struggling consumers as anything else.
People still need to eat and drink, and PepsiCo owns many of the most popular names in your local grocery store. Think Pepsi, Gatorade, Mountain Dew, Lays, Doritos, and more. Plus, the company is pivoting to new healthy and specialty foods for growth; it recently acquired Siete Foods for $1.2 billion. The company will probably be fine in time. Analysts still estimate that PepsiCo will grow earnings by an average of 6.5% annually moving forward.
PepsiCo is a Dividend King with 52 consecutive annual increases, averaging 6.8% per increase for the past five years. The dividend payout ratio is manageable at 66%, so investors should see future increases on par with earnings growth. The stock has slid to a forward P/E under 18, and its 3.55% dividend yield is a decade-high outside of the COVID-19 market crash in 2020.
3. Hershey
Confectionery and snack conglomerate Hershey (HSY 0.14%) has been a longtime market-beating stock. However, it has fallen into a multi-year rut, due primarily to surging cocoa prices as a result of a global supply shortage. Hershey is feeling the pressure on its business, and its efforts to offset that with price increases have also eaten into its sales volume a bit. Some speculate that GLP-1 agonists will cause people to drop their sugar cravings, and new competition has sprung up from upstart brands.
Like PepsiCo, Hershey's stock is seldom cheap under normal circumstances, so this adversity can seem scary. However, it may eventually be the best buying opportunity in years. Chocolate and candy have been cultural staples for centuries, and Hershey owns several of the most popular brands in America, including Hershey's, Reese's, Almond Joy, Twizzlers, and more.
The stock trades slightly below 21 times its 2024 earnings estimates, notably below its 10-year average of 27.5. The business earns an impressive 21.6% return on invested capital, generating profits to fund dividends. Hershey has raised the dividend for 15 consecutive years, backed by a rock-solid 60% payout ratio (using 2024 earnings estimates). Hershey can feel like a contrarian buy today, but this proven winner could bounce back in a big way once cocoa prices normalize.
