A Once-in-a-Decade Opportunity: 1 Magnificent S&P 500 Dividend Stock Down 36% to Double Up on Right Now

It is a beautiful thing when you find a feel-good stock that offers market-beating potential. A perfect example of this combination today is animal healthcare specialist Zoetis (NYSE: ZTS).

Whether helping our furry friends at home, keeping livestock healthy, or doing its part to battle the bird flu outbreak that has sent egg prices sky high, Zoetis is easy to root for these days. And it has been a market-beating proposition since its 2013 initial public offering, more than quintupling investors' returns over that time.

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However, following a 36% drop in share price, the stock is available at a rare discount. Here are the five main reasons that have me doubling up on my position in this magnificent S&P 500 dividend stock.

1. Zoetis is a well-diversified innovator

Zoetis creates medicines, vaccines, genetic tests, diagnostics, and precision animal health products for companion animals and livestock alike. The company is well-diversified across the animal healthcare industry. Some notable statistics:

• It focuses on eight core species: dogs, cats, cows, chickens, pigs, horses, fish, and sheep.
• It has 15 blockbuster products earning $100 million or more annually.
• It has more than 300 product lines.
• Over 2,000 new products or innovations were created in the last decade.
• Two-thirds of sales are generated from companion animals and one-third from livestock.
• 55% of its sales come from the United States and 45% internationally.
• 90% of its sales come from products that are No. 1 or No. 2 in their respective market share.

The company has been growing faster than the overall animal healthcare industry every year since 2014 thanks to its penchant for continuous innovation. Management believes the veterinary healthcare category will grow by 5% annually through 2032 with the megatrend in the humanization of pets, giving the company a rosy outlook.

2. Growth through new osteoarthritis medicines

Zoetis' newest blockbusters are its osteoarthritis (OA) pain treatments for dogs and cats: Librela and Solensia. These monoclonal antibodies offer improved efficacy compared to traditional non-steroidal anti-inflammatory drugs and have quickly proved to be popular among pet owners.

The two OA pain treatments increased sales by 80% in 2024 (and 20% in the fourth quarter against a tougher comparable) and are already the company's fourth-largest franchise.

With roughly 40% of cats and dogs getting OA in their lifetimes, Librela and Solensia will likely remain popular options among pet owners who are increasingly willing to spend more to care for their furry friends.

Cats and dogs are living longer than ever, and the prevalence of OA will rise as these pets age, making Zoetis' newest blockbuster treatments even more valuable with time. Librela is currently treating only 10% of dogs with OA, so plenty of room for growth remains.

Image source: Getty Images.

3. Profitability is high and rising

Zoetis has shown an ability to recreate itself through product innovations and new treatments, and its profitability has steadily gone from good to outstanding.

ZTS Profit Margin and Return on Invested Capital data by YCharts

Its net profit margin has more than tripled since 2012, and return on invested capital (ROIC) has grown to 21%, which ranks in the top quintile of the S&P 500. Stocks with high and rising ROICs have historically outperformed their lower-ranked peers since they generate outsize profits compared to their debt and equity.

This profitability creates a flywheel effect, as Zoetis can reinvest in its operations through more research and development or mergers and acquisitions, while also allowing it to reward shareholders handsomely.

4. A steadily lowering share count and a quickly growing dividend

Thanks to its ballooning profitability, Zoetis has grown its dividend by 22% annually over the last decade. At the same time, however, the company has also reduced its total shares outstanding by 1% annually since 2014, creating my favorite "X factor" chart.

ZTS Shares Outstanding and Dividend data by YCharts

These stock buybacks help juice Zoetis' earnings per share (EPS) figures since the denominator of the EPS equation (total shares) keeps shrinking over time.

The shares' 36% drop in price means these stock repurchases are even more valuable because management can eliminate shares at a discount. Furthermore, even though the company's dividend yield sits at all-time highs, it requires only 32% of net income, leaving plenty of room for future increases.

5. Zoetis is available at a once-in-a-decade valuation

Currently, Zoetis trades at a price-to-earnings ratio (P/E) of 29 and a dividend yield of 1.2%.

ZTS PE Ratio and Dividend Yield data by YCharts

Both of these metrics are at their most attractive levels in the company's history, making this a once-in-a-decade opportunity. Its discounted price combined with a long track record of steady growth, rising profitability, and returning cash to shareholders make Zoetis my favorite S&P 500 dividend stock to double up on right now.

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*Stock Advisor returns as of February 21, 2025

Josh Kohn-Lindquist has positions in Zoetis. The Motley Fool has positions in and recommends Zoetis. The Motley Fool has a disclosure policy.