Stock Market Sell-Off: 1 Magnificent S&P 500 Dividend Stock Down 40% to Buy Right Now at a Once-in-a-Decade Valuation

So far this year, the S&P 500 index has dropped 19% from its highs. While I typically view these sell-offs as an opportunity to add up on some of my best-performing growth stocks (such as The Trade Desk or Wingstop), one of my favorite dividend stocks has also fallen through the cracks.

Or technically, I should say, one of my daughter's favorite dividend stocks: The Hershey Company (NYSE: HSY).

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While I usually look to add up rather than double down on stocks for my daughter and me, I'm comfortable making Hershey the exception to this rule thanks to its recession-resilient offerings, growing dividend, and discounted valuation.

With the beloved brand's stock down 42% from its all-time highs due to an array of shorter-term issues (primarily elevated cocoa prices), here are four reasons why Hershey looks like a magnificent S&P 500 dividend stock to buy during the sell-off.

1. Hershey's history of successful acquisitions

Hershey is home to the three most widely recognized chocolate brands in the United States: Hershey's, Reese's, and Kit Kat (which it sells in the U.S. for Nestlé).

However, despite the popularity of its namesake brand, Hershey's growth story stems from a long list of mergers and acquisitions (M&A), including the additions of:

• Reese's in 1963
• Twizzlers in 1977
• Jolly Rancher, Milk Duds, Whoppers, Pay Day, Good & Plenty, and Heath brands in 1996
• Skinnypop popcorn and Pirate's Booty rice and corn puffs in 2017
• Dot's Pretzels and Lily's Sweets in 2021
• Sour Strips in 2024 and LesserEvil in 2025

Powered by this strategy as a serial acquirer, Hershey has delivered 12% annualized total returns since 1972, outpacing the S&P 500's long-term average of 10%.

Another way to show the success of Hershey's strategy is to look at its cash return on invested capital (ROIC). Averaging 21% over the last two decades, this high cash ROIC shows that management excels at finding M&A opportunities in the market and integrating them successfully into The Hershey Company.

Measuring the cash return the company generates from the debt and equity it uses in its operations, Hershey's 21% cash ROIC ranks in the top 100 of the S&P 500 -- a historical signal of potential outperformance.

Better yet for investors, Hershey has struck again, announcing the $750 million acquisition of LesserEvil earlier this month.

2. Opting for the LesserEvil

Rising to popularity for its array of organic puffs, popcorn, and curls made in coconut oil, LesserEvil seems like the perfect fit for Hershey as the larger company looks to continue diversifying its portfolio beyond chocolate.

While LesserEvil's revenue only equals roughly 1% of Hershey's sales, it gives the company access to a high-growth brand in a "better-for-you" snacking niche growing by 12% annually. Whether through simpler and cleaner ingredients, zero- and low-sugar options, or high-protein products, Hershey intends to play a key role in the healthier-snacks industry. This acquisition supports that notion.

With Hershey's salty, better-for-you, and sweet sales rising 21%, 9%, and 7% over the last seven years, look for these innovative products to become the next chapter of the company's growth story.

Image source: Getty Images.

3. A dividend yield near all-time highs

Although Hershey has historically spent heavily on M&A, it has never neglected its dividend raises. Increasing its payouts for 15 consecutive years, the snacking behemoth has boosted its dividend yield to a whopping 3.4%:

HSY Dividend Yield data by YCharts.

Roughly 50% higher than its 10-year average, this 3.4% yield looks like a once-in-a-decade opportunity. Despite being higher than usual, this dividend only uses 49% of Hershey's net income and 56% of its free cash flow (FCF) for funding.

These figures show that the dividend is very safe, especially considering Hershey's resilient operations. It also leaves plenty of wiggle room for future increases for investors.

4. A once-in-a-decade valuation

In addition to Hershey's dividend yield being near a once-in-a-decade high, its earnings and FCF yields are also at a decade-long high:

HSY Earnings and FCF Yields data by YCharts.

The inverse of the price-to-earnings (P/E) and price-to-FCF (P/FCF) ratios (so higher means cheaper), these high earnings and FCF yields also look like a once-in-a-decade opportunity. While the company's true valuation probably lies somewhere in between these two yields due to fluctuations in working capital, it remains much more attractive than the S&P 500's average FCF yield of around 3.5%.

Ultimately, 2025 is going to be a rough year for Hershey, as cocoa prices remain more than three times (or about 256%) higher than it was five years ago.

HSY Free Cash Flow and Cocoa Prices data by YCharts.

However, Hershey has already been fighting these ballooning prices. As the chart above shows, the company has maintained positive FCF generation in the past, and even saw a healthy rebound as cocoa prices cooled slightly before spiking again.

That said, I'm more than happy to wait for a turnaround in this magnificent dividend stock. While this headwind will persist indefinitely, Hershey's stable FCF, once-in-a-decade valuation and dividend yield, and expanding snacking portfolio make it a perfect long-term holding for my daughter to hang on to for another decade.

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Josh Kohn-Lindquist has positions in Hershey, The Trade Desk, and Wingstop. The Motley Fool has positions in and recommends Hershey and The Trade Desk. The Motley Fool recommends Nestlé and Wingstop. The Motley Fool has a disclosure policy.