2 Magnificent S&P 500 Dividend Stocks Down 9% and 21% to Buy and Hold Forever

Many investors are always on the hunt for the next multibagger. While the strategy can be rewarding, it also often involves a lot of risk, tying up money that could be invested elsewhere and even experiencing losses. But high-stakes investing isn't the only way to put your money to work. The smartest investors, like Warren Buffett, look for steady stocks that can return a lot of capital to shareholders over a long period.

Dividend stocks in the S&P 500 can be a good way to play this strategy. Over time, investors can turn pennies into dollars that compound into larger sums. Here are two magnificent S&P 500 dividend stocks down 9% and 21% recently that investors can buy and hold forever.

1. Verizon -- 6.6% dividend yield

Shares of Verizon Communications (NYSE: VZ) have fallen roughly 9% since peaking at the start of October and trail the broader market on the year. The dip came after the company reported its third-quarter earnings. Earnings beat expectations modestly, while revenue disappointed due to fewer wireless equipment sales.

Investors may have concerns about Verizon's debt, which reached over $128 billion in the third quarter, although that's down from close to $138 billion at the end of 2023. That gives Verizon a debt-to-equity ratio of about 1.32. Investors would prefer to see this ratio lower, but it's not overly worrisome to other highly leveraged companies.

A key part of Verizon's strategy is to grow its share in the fiber-optic internet market, which is considered faster and more reliable than cable internet. While the company has work to do, it recently acquired Frontier Communications for $20 billion in cash. The transaction will grow Verizon's fiber-optic scale by adding 2.2 million fiber-optic subscribers and bringing its total network to 25 million.

The strategy may take time to play out, and Verizon is compensating investors with a very generous 6.5% dividend yield. This dividend seems sustainable, considering Verizon has increased its dividend for 18 straight years. The company's quarterly payout ratio, which looks at how much of the dividend is covered by earnings, can vary but typically comes in at less than 60%, so this is a relatively safe dividend stock that investors should be able to buy and hold forever.

2. Ford -- 5.2% dividend yield

Ford's (NYSE: F) stock has fallen nearly 22% from highs seen in mid-July of this year, and earnings were once again behind the drop. Ford's earnings fell short of what analysts had been projecting due to vehicle recalls and warranty costs, which chipped away at earnings. Ford's electric vehicle business also continues to lose money.

Things got better for Ford in the third quarter after the auto giant squeaked out a beat and guided for earnings before interest and taxes to the low end of its prior guidance, which was better than some analysts expected. Some feared that Ford might have to lower guidance. The company also improved its warranty costs and took a smaller loss in its EV division than one year ago. These developments represented an improvement but did not necessarily impress the market.

President-Elect Donald Trump's policies may end up benefiting Ford. Trump has vowed to eliminate EV tax credits, cut corporate taxes, and impose tariffs, all of which should benefit domestic automakers. Ford is trying to build its EV business, but its traditional car business is still at the center of the company right now.

The stock currently has a hearty 5.4% dividend yield. The payout ratio was elevated in the third quarter, but the company typically targets a sustainable payout ratio of 40% to 50%. The business has challenges ahead, but the company has been a staple of the American economy for decades, and I expect it to continue to be for many decades more while continuing to pay a healthy dividend.

Should you invest $1,000 in Verizon Communications right now?

Before you buy stock in Verizon Communications, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Verizon Communications wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $858,854!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 18, 2024

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.