3 Magnificent S&P 500 Dividend Stocks Down 11% to 63% to Buy and Hold Forever

The past few weeks have been tough ones for the market. Tariffs are obviously a direct threat to most companies’ top and bottom lines, while the broad economic weakness they might cause is nearly impossible to predict. Investors are just pricing in the risk of new knowns, as well as new unknowns.

The fact is, however, the recent round of weakness is a buying opportunity for long-term investors. Most companies are considerably more adaptable and far more resilient than the market’s currently giving them credit for, which is likely to become evident sooner than you might expect.

With that as the backdrop, here’s a closer look at three beaten-down S&P 500 dividend stocks that should be at the top of most income investors’ current watchlists.

Cisco Systems

When investors think of dividend stocks, technology stocks rarely come to mind. And understandably so. Most of these companies are almost entirely focused on growth, and subsequently devote the bulk of their income to improving and expanding their product lines.

Networking giant Cisco Systems (CSCO 0.71%) is a partial exception to this paradigm though. While it’s spending plenty on research and development, a sizeable portion of its profits are also dished out to shareholders in the form of a dividend. Indeed, the company shelled out nearly $6.4 billion worth of dividends last fiscal year, consuming more than half of its net income. It’s annual per-share payout has also now been raised 13 years in a row, and although these increases aren’t enormous (the most recent one was only a 3% improvement, roughly in line with long-term sales growth), newcomers will be plugging into a ticker with a healthy forward-looking yield of nearly 2.9%.

But a “forever” dividend stock?

There’s no denying the networking industry’s highest-growth days are in the rearview mirror. It would also be short-sighted to ignore the fact that rivals like Arista Networks and Juniper are finally figuring out ways to compete with the industry’s biggest company, IDC’s estimate that Cisco still controls about one-third the global ethernet switch market, however, means it’s mere dominant presence will make it tough to steal share from it.

Then there’s the fact that software is becoming an increasingly important component of its business mix. Although it only makes up about one-third of its top line, this is high-margin revenue, and recurring revenue. Its annualized run rate stands at nearly $30, in fact. This means this company will have the cash flow it needs to maintain its dividend payments and dividend growth well into the future, since it’s this software that makes the most of its networking hardware.

This dynamic is a big part of the reason this stock’s only down from February’s record high, by the way, which may be all the discount you’re going to get here.

PepsiCo

The Coca-Cola Company is most investors’ go-to name within the beverage business, and understandably so. It’s not only the biggest name in the business, but the brand has woven itself into the fabric of the culture here and abroad. Trading and investing outfit IG suggests Coca-Cola is the world’s fifth-most recognized brand name, in fact.

Except, the dominant name within the drinks industry arguably isn’t the its best investment. That honor arguably belongs to smaller rival PepsiCo (PEP -1.46%), for a couple of reasons.

One of these reasons is the fact that -- when factoring in reinvested dividend payments during this time – since 1995 an investment in PepsiCo has easily outperformed an investment in Coca-Cola despite PepsiCo stock’s 25% setback since 2023 that Coca-Cola shares haven’t mirrored.

KO Total Return Price data by YCharts

Credit a combination bigger dividend growth and more aggressive stock repurchases from PepsiCo, mostly.

And the other reason an income-minded investor might want to dive into a stake in PepsiCo now that the pullback’s pumped its forward-looking dividend yield of more than 3.7%? Because these two companies are different in ways that matter, and matter now more than ever now that every organization is apt to begin pinching pennies.

As a consumer you can’t tell. But, Coke’s and PepsiCo’s business models are quite different. Coca-Cola relies almost exclusively on third-party bottlers so it can focus more time and attention on marketing and brand-building. PepsiCo, conversely, owns and operates most of its own bottling facilities as well as the production facilities for its Frito-Lay snack chip arm. Although this approach raises the company’s overall operating costs, it also provides PepsiCo with fine-tune control of its production. With every organization’s operating costs are on the verge of rising, this little advantage is suddenly a very big deal. It could remain a big deal for a long time too.

Pfizer

Finally, add drugmaker Pfizer (PFE 0.75%) to your list of dividend stocks to buy and hold forever while you can plug into its forward-looking dividend yield of 7.8%.

The past few years have been tough ones here. While Pfizer’s stock soared during and because of the COVID-19 pandemic (its Paxlovid was one of only a handful of approved treatments for the coronavirus), the company’s found nothing to fully offset the waning demand for the drug in the meantime. That’s why shares have dwindled since late-2021, reaching a new multiyear low this week after deciding to stop development of GLP-1 weight-loss drug Danuglipron. Investors are growing understandably frustrated. Never even mind the impact of fresh tariffs on drugs that American companies are manufacturing overseas and importing into the United States.

The thing is, there’s nothing terribly unusual or unsurvivable about the company’s current rough patch.

See, the pharmaceutical business is one that regularly ebbs and flows, in step with regulation as well as research and development capabilities. It’s also one that -- despite the industry’s best efforts -- often leaves drug companies dependent on just one or two products for the lion’s share of their business. Roughly 40% of Merck’s sales are driven by its cancer-fighting drug Keytruda, for example.

And that’s what’s been missing for Pfizer for the past several years. As its coronavirus business continues to shrink, there’s nothing in its current portfolio stepping up and filling that gap. Outside of its waning COVID-related business, in fact, nothing else accounts for more than about one-tenth of its total sales, and none of these drugs are seeing great growth right now.

It’s coming though. The drugmaker expects four new drug approvals this year, including the approval of Abrysvo as a treatment for RSC (respiratory syncytial virus) and Braftovi for certain types of colon cancer. Also this year we’ll hear phase 3 trial updates regarding Elrexfio, Tukysa, and Sasanlimab, all underscoring Pfizer’s newfound interest in oncology now most of the COVID-opportunity is in the rearview mirror.

The iconic company’s R&D pipeline still isn’t quite as robust as most investors might like. It’s coming around though, slowly and methodically. There’s also no denying Pfizer has a long, healthy history of acquiring blockbuster drugs, as it did with Lipitor.

Now down more than 60% from its peak, none of its likely long-term bullish future is reflected in the stock’s current price.