Stock Market Sell-Off: 2 Dirt Cheap Dividend Stocks to Buy Now

The S&P 500 (SNPINDEX: ^GSPC) is down 10% so far this year. And that has a lot to do with the Trump administration's trade policy, which has proven unpredictable and extreme.

However, this sudden stock market correction could create opportunities for investors to bet on quality companies at a discount. Let's discuss some reasons why Realty Income (NYSE: O) and Dollar General (NYSE: DG) could make great long-term buys.

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1. Realty Income

Since its founding in 1969, Realty Income has grown to become America's eighth-largest real estate investment trust (REIT) -- a type of business structure that allows a company to avoid taxes if it returns 90% of its income to shareholders through a dividend. Realty Income is a great way to weather the tariff storm because of its focus on high-quality tenants that sell recession-resilient consumer goods in the U.S. market.

Realty Income gets most of its revenue from renting out a vast portfolio of single-unit freestanding commercial properties. Top clients include grocery stores, drugstores, and dollar stores, which sell essential goods that people will still buy, no matter what is happening in the broader economy.

The company boasts a dividend yield of 5.9%, and its size and diversification insulate it from problems in any specific client or industry.

Some investors may think REIT investing is a boring way to bet on the market. But over the long term, these investment vehicles can dramatically outperform traditional stocks through the magic of compounding interest (i.e., dividend reinvestment). Over the last 10 years, Realty Income has delivered a total return of 199.9%, trouncing the S&P 500's gain of 79% over the same period.

O Total Return Level data by YCharts

2. Dollar General

Analysts at JPMorgan put the U.S. economy at a 60% chance of entering recession in 2025. If a downturn happens, it could divert consumer spending away from luxuries to low-cost essentials, helping discount retailers like Dollar General capture market share from upmarket alternatives. The stock is already showing signs of resilience -- up 16% year to date, while the S&P 500 has fallen 10% over the same period.

Dollar General is also uniquely poised to weather a potential trade war. According to analysts at Citi, only 10% of its inventory is exposed to tariffs, compared to 50%-100% at mainstream retail stores.

That said, Dollar General is more than just a defensive play against a bad economy. Management is also executing an exciting growth strategy that will involve taking advantage of the company's sizable physical footprint of 20,594 stores (often in rural, underserved areas) to expand into other opportunities like pharmaceutical products. The company also continues to increase its store count, with 608 new locations added in fiscal 2024.

With a forward price-to-earnings (P/E) multiple of just 16, Dollar General stock is significantly cheaper than the market's average estimate of 20. And it offers a healthy dividend yield of 2.7%.

Investors should pivot to value stocks

Image source: Getty Images.

With the market down sharply, it's tempting to jump back into growth stocks like the "Magnificent Seven" and others. However, even though the Trump administration has paused most of its "reciprocal tariffs" for around 90 days, the cloud of uncertainty still hangs over the market.

At this point, the main problem is not the tariffs; it's the policy unpredictability, which makes it difficult for businesses to make investments and plan for the future. In times like these, investors should hunker down into stable value stocks like Realty Income and Dollar General, which focus on consumer essentials in the U.S. and are not very exposed to international trade or possible retaliation.

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

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Citigroup is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Will Ebiefung has positions in Realty Income. The Motley Fool has positions in and recommends JPMorgan Chase and Realty Income. The Motley Fool has a disclosure policy.