Two Outstanding S&P 500 Dividend Stocks Experiencing Declines of 27% to 51%, Offering Potential Long-Term Investment Opportunities
Two Outstanding S&P 500 Dividend Stocks Experiencing Declines of 27% to 51%, Offering Potential Long-Term Investment Opportunities
Dividends have been significant in numerous S&P 500 corporations. These payouts act as a supportive element in such stocks, and some continue to exhibit substantial growth potential.
Indeed, several of the S&P's leading dividend stocks have established new record highs recently. However, investors can still identify dividend payers with buying potential – stocks that have experienced a downturn yet exhibit resilience. Such stocks can deliver cash payouts and the possibility of share price increases.
Two such stocks worth considering at present are AT&T (-0.44%) and Realty Income (-0.77%). Despite current difficulties, these stocks show potential for prosperity. Let me explain why.
AT&T
Telecom titan AT&T may not appear to be an appealing dividend stock due to its issues over the last few years. The sale of its DirecTV investment and its media segment to Warner Bros Discovery contributed to the end of a 35-year yearly streak of dividend hikes. Moreover, a significant debt burden that threatened its remaining payout remained.
However, its annual dividend of $1.11 per share, equivalent to a 5.1% yield after the 2022 reduction, reflects the stock's long-term decline. Furthermore, it has generated enough free cash flow to cover more than $8 billion in dividend expenses and decrease its overall debt by $9 billion over the past 12 months.
These financial improvements suggest that although the stock has plummeted 51% below its late 1990s peak, it might be preparing for a comeback. In the first three quarters of 2024, the company reported nearly 1.2 million new postpaid phone subscriptions with a churn rate of just 0.75% in each quarter. AT&T Fiber also added over 700,000 customers, indicating the rising popularity of its service and customer retention.
These improvements likely contributed to the stock's increase by over 50% during the previous year. Despite this surge, its P/E ratio remains at approximately 18, significantly less than its competitor T-Mobile's 26 times earnings.
Furthermore, investors should remember that AT&T controls one of America's three wireless networks. Continuing to play a crucial role in communication and recently in artificial intelligence (AI), the potential dividend growth and prosperity that the telecom stock provides may be too intriguing for investors to ignore.
Realty Income
Realty Income plays a unique role in the business world. This real estate investment trust (REIT) owns approximately 15,500 single-tenant, net-leased properties. Top retailers like Walmart, Home Depot, and Dollar General, among others, no longer prefer to own their real estate.
As a result, Realty Income purchases and leases these properties, generating REIT revenue. Furthermore, tenants cover maintenance, taxes, and insurance costs, addressing some of the difficulties that come with property leasing.
Despite these advantages, its stock has declined by about 27% from its pre-pandemic high.
Although higher interest rates likely reduce its profitability, Realty Income has continued to develop properties with an occupancy rate of almost 99%. For the first half of 2024, 198 properties were either acquired or under development. Moreover, the acquisition of Spirit Realty in 2023 added nearly 2,100 properties to its portfolio.
Hence, although Realty Income might appreciate lower interest rates, it has continued its expansion in the current environment. Additionally, Realty Income has increased its monthly dividend periodically and has surpassed this amount at least once annually since its 1994 inception. At $3.16 per share annually, the stock currently yields approximately 5.2%.
Finally, assuming it achieves the forecast $4.24 per share (at the midpoint) in normalized funds from operations (FFO) income, the stock trades at a price-to-FFO ratio of about 14. With an anticipated tailwind from lower interest rates, Realty Income could become a secure, lucrative source of substantial income and market-beating returns.
The mention of potential dividend payers with buying potential leads us to consider stocks like AT&T and Realty Income, even with their recent downturns. In the case of AT&T, despite experiencing a 51% decline since its late 1990s peak, its strong financial improvements and strategic partnerships suggest a possible comeback, making it an appealing dividend stock for investors with patience. Regarding Realty Income, although its stock has declined by about 27% from its pre-pandemic high, its acquisition of properties and high occupancy rate have allowed it to continue its expansion, making it a potential source of substantial income and market-beating returns. Therefore, investors interested in finance and investing might consider these stocks as part of their money management strategies.