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3 Dividend Stocks to Buy on the Dip

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One thing that every financial analyst and investor can agree on is that markets fluctuate. Stock prices rise and fall for innumerable reasons. However, instead of chasing stocks, investors should use this market volatility to their advantage. A prudent strategy is to find industry-leading companies with sustainable dividend payouts, and buy in during dips in their stock prices. To help you get started, I've highlighted three dividend stocks that I plan to buy on the dips.

1. Apple (NASDAQ: AAPL  )
Apple stock has been in a free fall for much of this year, with the stock down more than 25% year to date. However, Apple shares are looking like an attractive bargain for value investors, with the stock currently trading at just seven times next year's earnings. While there's certainly a bear case to be made for Apple, it appears that much of the risk is already priced into the stock.

It's no secret that Apple faces tough competition from industry giants including Microsoft, Google, and Samsung. Meanwhile, analysts on average expect Apple's earnings to decline 18% from the year-ago period, according to The Wall Street Journal. Nevertheless, there are a number of catalysts working in Apple's favor.

The Apple ecosystem of hardware, software, services, and apps acts as a network effect. This means that current Apple users are more likely to buy future Apple products, rather than switch to a new platform such as Android. Therefore, I'm of the contrarian opinion that Apple's iDevices will continue to attract new users in the years to come.

Shifting back to Apple as an attractive dividend stock, it's important that investors take into account the strength of Apple's balance sheet. Not many companies can claim more than $150 billion in cash and zero debt. Not to mention, the stock boasts a 2.6% dividend yield. That's not bad for a company in the early stages of transitioning from a growth stock to a value stock.

Moreover, given Apple's massive cash stash, I would be surprised if the company doesn't issue a dividend hike in the near future. Apple's in a liminal stage at this point, but the underlying fundamentals remain intact. I believe the stock's current valuation creates a buying opportunity for long-term investors.

2. PepsiCo (NYSE: PEP  )
This global soda and snack company offers investors another quality dividend stock to buy on the next dip. For starters, the pop star's efforts to increase its competitiveness are beginning to pay off. Indeed, Pepsi stock hit an all-time high last week following the company's first-quarter results. However, with shares up more than 21% year to date, is this still the stock to buy in 2013? I certainly think so. Here's why...

The company beat analysts' expectations for its first quarter, with profits climbing 12% and organic revenue up 4% in the period. Meanwhile, strength in its snacks business, as well as emerging markets, helped offset a 3% decline in Pepsi's North American soda division.

Moreover, Pepsi continues to cut costs where possible, which should boost profit margins going forward. Specifically, the company expects savings of $3 billion by 2015, thanks to its ongoing productivity program.

Looking ahead, Pepsi should also benefit from growth opportunities in emerging markets, such as India and China. The company is heavily invested in China. In fact, by the end of this year, the cola and snack giant will have invested more than $2.5 billion in its operations there. The Asian country is also home to Pepsi's largest research and development center outside of the United States.

Not only is Pepsi investing in its future, but it's also rewarding shareholders along the way. In 2013, Pepsi says it will return more than $6 billion to shareholders through share repurchases and dividend payouts. With a dividend yield of 2.6%, Pepsi is certainly one of the stocks to buy in the year ahead. Finally, the company's status as a Dividend Aristocrat makes this a reliable dividend stock for even the most conservative investors.

3. Walgreen (NASDAQ: WBA  )
The next stock to buy on a dip is pharmacy retailer Walgreen. The stock has already had an impressive run this year, with shares up as much as 34%. However, with lost customers returning to Walgreen stores following a resolution with Express Scripts, and strategic investments playing out overseas, Walgreen shares will likely continue higher from here.

Walgreen and pharmacy benefits manager Express Scripts were finally able to reach a new multiyear agreement. As a result, an increasing number of pharmacy customers are filing back into Walgreen's network. Separately, Walgreen's stake in European drugstore chain Alliance Boots should help Walgreen increase efficiencies in its global supply chain. Together, these catalysts could lift its stock higher in the quarters to come.

Walgreen joins PepsiCo as a Dividend Aristocrat. What's more, the company has paid a dividend without interruption for more than 80 years. With a dividend yield of 2.2%, the stock has achieved a compound annual growth rate of about 24% over the last five years. Given the company's dividend growth history, chances are good that Walgreen will continue to reward investors going forward.

Final thoughts
I strongly believe that these dividend stocks will reward patient investors for many more years to come. For this reason, I plan to add to my positions in Apple, Pepsi, and Walgreen during dips in their respective stock prices.

Apple has been the most volatile of these three dividend stocks in recent months, and there is still a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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