2 Magnificent S&P 500 Dividend Stocks Down 40% to 70% to Buy and Hold Forever

All investors love their dividends, but merely looking at a stock's dividend yield can be misleading. After all, a stock with a high yield could suggest that the dividend is about to be cut, that the business may be declining, or that there are other risks, such as high debt. But sometimes, big declines in dividend stocks can be massive income-producing opportunities if the business recovers and continues raising its payout over the long term.

The following beaten-down dividend stocks -- down 40% to 70% from their highs -- are suffering from the ripple effects of the pandemic and the rise in interest rates. However, inflationary headwinds could be ebbing. Meanwhile, each company recently brought a formerly successful CEO back out of retirement to help steer their turnarounds. Thus, both could be huge income opportunities.

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Dollar General

At first glance, Dollar General (NYSE: DG) would seem like a resilient stock. The company is the largest U.S. retailer in terms of the number of outlets, with over 20,500 small-format stores selling low-priced essentials in small towns across America. That seems like a business that would be able to weather hard times.

However, the post-pandemic period has been challenging. After COVID-19-era stimulus checks ran out and inflation shot up, Dollar General's core consumers felt acute financial pressure. This led to a big increase in shoplifting, or "shrink," which has eaten into margins. Notably, 60% of Dollar General's sales come from households making under $30,000 per year, and 80% of its stores are in communities with 20,000 people or less.

As a result, revenue growth has slowed, and earnings have plunged from almost $11 at the height of the pandemic to just $6.07 over the past 12 months. Shares are more than 71% below their 2022 highs.

Still, that $6.07 covers the company's $2.36 dividend almost three times over, a yield of 3.15% at this stock price. Shares go for just 12.5 times earnings on what could be a cyclical, low earnings number.

With that low of a valuation, it wouldn't take much for the stock to work again. Meanwhile, things are starting to improve. Todd Vasos, who was CEO during Dollar General's rise from 2015 to 2022, returned as CEO in October 2023 to turn the company around. Although it's been slow going, same-store sales are now positive, up 1.3% in the most recent quarter (ended Nov. 1).

Vasos appears to be implementing a back-to-basics strategy, taking steps to limit shrink via training and other measures, and pursuing a modest store expansion strategy. Management projects 575 new store openings in 2025, which is a solid but small expansion on top of the company's 20,500-store base. Instead, Vasos is leaning on 2,000 full remodels of older stores and 2,250 incremental remodels of newer stores to elevate the customer experience.

While Dollar General claims to have room for an additional 12,000 stores in the U.S., it's likely a good thing Vasos is concentrating on updating older stores to boost same-store sales and profits. Getting more leverage on every store will be key to this turnaround effort and would provide more profits to fuel unit expansion over time.

Microchip Technology

Microcontroller giant Microchip Technology (NASDAQ: MCHP) has been a long-term winner in the semiconductor space but has recently fallen hard amid a severe auto and industrial chip downturn. Though shares have surged 20% or so off their recent bottom, they remain 42% below all-time highs. As the stock plunged last year, Microchip's dividend yield has risen to 3.15%.

Microchip's CEO situation mirrors that of Dollar General. Longtime CEO Steve Sanghi, who became CEO of Microchip in 1991 and built it into the behemoth it is today, retired in 2021. However, after the post-pandemic downturn, Sanghi was asked to return to the CEO position and retook the helm in November 2024.

Microchip's microcontroller and analog chips were in ultra-high demand in the post-pandemic era, when everyone was buying homes, appliances, and cars. This allowed Microchip to raise prices and have customers agree to buy products one year out or more. Because Microchip locked customers up in long-term contracts during the shortage, its sales and profits remained somewhat resilient even when interest rates began to rise. However, the company is paying for this now, as demand has dropped, and its customers were left with far too much inventory.

Microchip's sales have, therefore, completely fallen out of bed, even below where they were in 2019, the last major industrial chip downturn. That's a very extreme downdraft, as semiconductor companies typically make higher highs and lows in each subsequent cycle. This shows just how severe the pandemic-era disruptions were and how they are rippling through businesses even five years after the COVID pandemic swept the world.

MCHP data by YCharts.

Still, the next upcycle will begin eventually. The recent industrial chip downturn started in mid-2022, and we're still mired in it in early 2025. That's a really long semiconductor downcycle. Most major players have been under-shipping end demand as customers burn off inventory, so even if there is no big end-market recovery, Microchip's revenue should still improve from current levels.

Meanwhile, since returning, Sanghi has undertaken a comprehensive, in-depth study of the current business and will present the findings on March 3. With an articulated turnaround plan, that event could reignite optimism in the stock.

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Billy Duberstein and/or his clients have positions in Microchip Technology. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.