7 Dividend Stocks on Sale Now

For years, investors have jumped at the chance to buy dividend stocks. Now the market is giving you a chance to buy many of your favorites at bargain-basement prices -- and even though stocks are down again today, the bargains may not last for very long.

Getting while the getting's good
It's been years since we've seen this much uncertainty in the financial markets. Potential crisis situations have developed around the world. Inflation has hit emerging countries like China and Brazil hard, forcing them to make interest rate hikes and use other harsh measures to control red-hot economic growth. Meanwhile, the European sovereign debt crisis has only faded relative to the U.S. debt downgrade; all the problems in Greece and other weak European economies persist without any easy solutions. A general lack of confidence in most paper currencies has driven gold prices higher, along with safe havens like the Swiss franc, which is approaching parity with the euro for the first time.

Uncertainty may be bad for your current investments, but it's great if you have cash and are trying to figure out how to get into the market. Many have targeted dividend-paying stocks for their new investing money, as their combination of solid current income and good growth prospects -- combined with some defensive properties that help many of them hold up well during downturns -- is perfectly suited to the current market environment.

New investors have faced a problem, though: prices for dividend stocks had climbed through the roof. From February 2009 to May 2011, the SPDR S&P Dividend ETF doubled. Many stocks did even better, as a combination of recovery-driven capital gains and rising payouts led to strong returns. The risk in dividend stocks was that you'd buy at highs -- only to see them plummet in a crash.

It's time to buy!
Well, that crash has now happened. With the S&P still down more than 9% in August, even after yesterday's huge bounce, many dividend stocks have seen even bigger losses. To get a sense of the carnage, I looked at stocks offering a dividend yield of 3% or more that have lost at least 20% in the past month. Here were the seven largest:

Stock

Dividend Yield

1-Month Return

Illinois Tool Works (NYSE: ITW  ) 3.4% (24.7%)
Northrop Grumman (NYSE: NOC  ) 3.9% (21.7%)
Eaton (NYSE: ETN  ) 3.6% (21.8%)
Analog Devices (NYSE: ADI  ) 3.3% (21.8%)
Weyerhaeuser (NYSE: WY  ) 3.6% (22.6%)
NYSE Euronext (NYSE: NYX  ) 4.7% (20.4%)
Autoliv (NYSE: ALV  ) 3.6% (22.5%)

 Source: Capital IQ, a division of Standard & Poor's. Returns from July 8 to Aug. 9.

Some stock drops have come from news-related events. Northrop's earnings from continuing operations dropped almost 30%, while free cash flow went negative as concerns about future defense budget cuts hit the stock.

But most of these drops are just the result of general concerns about the economy. Illinois Tool, Eaton, Autoliv, and Weyerhaeuser all produce goods for industrial consumers, and their demand falls when economic activity slows down. With cyclical stocks, the news of U.S. GDP growing much more slowly than expected was cold water in shareholders' faces. Meanwhile, a general market plunge can mean less investing activity for NYSE Euronext, and chip maker Analog Devices needs consumers to keep buying the electronic products that have driven demand throughout the technology industry.

Get 'em while they're cheap
Sure, these short-term concerns are valid. Moreover, just because these stocks have dropped the most doesn't mean they're the best buys out there. You may find less severely marked-down dividend stocks with attributes that you like better.

The key point, though, is that if you have a long-term time horizon, what the economy does over the next couple of years isn't the most important consideration. If you can pick up shares at a temporarily low price just because a bunch of short-term traders can't be bothered to look at their future prospects, you'll likely end up a winner.

Get more great dividend stock ideas from this free special report from The Motley Fool. Inside, you'll find 13 names, along with analysis to tell you why we think they might fit well in your portfolio.

Fool contributor Dan Caplinger loves a good sale. You can follow him on Twitter here. He doesn't own shares of the stocks mentioned in this article. The Motley Fool owns shares of Northrop Grumman. Motley Fool newsletter services have recommended buying shares of Autoliv, Illinois Tool Works, and NYSE Euronext. Motley Fool newsletter services have recommended creating a bear put ladder position in Autoliv. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. With the Fool's disclosure policy , it doesn't get better than free.


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  • Report this Comment On August 10, 2011, at 7:30 PM, xetn wrote:

    "pick up shares at a temporarily low price"

    I curious as to just how you know this.

  • Report this Comment On August 11, 2011, at 1:23 AM, mikefango wrote:

    it will keep falling wait longer for it to drop more this is only the begging of the double dip recession

  • Report this Comment On August 11, 2011, at 2:51 AM, mm5525 wrote:

    I would add PM to this list. At $64.90 per share, the yield is 3.94%.

    Plus, PM will raise their dividend by @ 6 cents when they declare on 9/14 for the October payout. Last fall they raised by that amount, and PM's earnings have been far higher in 2011 than they were in 2010.

  • Report this Comment On August 11, 2011, at 8:48 AM, andrewongsc wrote:

    You've got to be courageous to buy on a steep decline 'cause you don't know when the bottom is reached.... but then again, those turn out to be the biggest gains one gets if there is a rebound.

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