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Dividend stocks are often the driving force of a well-rounded retirement portfolio.

Dividend stocks offer three key advantages that can be quite attractive to long-term investors. First, they are a sign of a company's proven long-term track record. A business wouldn't consider sharing its profits if the management team didn't believe those profits were sustainable.

Secondly, dividend stocks can help to hedge against inevitable downturns in the stock market. Since 1950, the S&P 500 has had 35 separate stock market corrections of at least 10%, when rounding to the nearest integer. While a dividend is unlikely to erase the paper losses created by a stock market downturn, it can help reduce investors' anxiety and mitigate some of their losses.

Lastly, dividend payments can often be reinvested into more shares of stock. This is referred to as a dividend reinvestment plan, or DRIP. Using a DRIP can accelerate your capital gains by creating a virtuous cycle in which your holding in the company slowly grows, and thus your dividend grows, and thus your reinvestment in the stock grows, and so on. It's like kicking compound interest into a higher gear.

These top dividend stocks appear to be discounted

Despite the S&P 500 hitting new all-time highs, quite a few top-notch dividend-paying stocks are down for the year. In fact, a quick screen of stocks as of July 25 yielding at least 3% with a minimum market cap of $2 billion and a year-to-date loss in value of 8% or higher produced almost 60 companies. Among these nearly five dozen stocks, four stand out as top dividend stocks that appear to be selling at discounts this summer.

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Department store retailer Nordstrom (JWN 0.09%) has had an uncharacteristically poor year in 2016, with shares down 10%. Most of the damage was done after the company reported its first-quarter results and adjusted its full-year guidance. For the quarter, net sales grew 2.5% to $3.2 billion, although comparable-store sales dipped 1.7%. More importantly, Nordstrom reduced its full-year EPS guidance from a range of $3.10-$3.35 to a range of $2.50-$2.70, and it slashed sales projections from 3.5%-5.5% growth to 2.5%-4.5% growth.

While it was far from a banner quarter, Nordstrom has something in its corner that rarely allows such setbacks to last very long: its clientele. Nordstrom tends to target a more affluent shopper, and wealthier shoppers aren't as liable to change their shopping habits because of shifts in the U.S. economy, such as weakening or stagnant growth. This would imply that Nordstrom is better positioned to ride out economic weakness than many of its department store peers.

Nordstrom also has near-record-low lending rates and margin predictability on its side. Low lending rates should continue to encourage consumers to spend. In addition, with the exception of its yearly anniversary sale, Nordstrom doesn't cheapen its brand with sales. It instead focuses on the exclusivity of its premier brands, such as Armani and Valentino, which should help drive long-term value.

Following its recent tumble, Nordstrom's 3.6% yield may put this top dividend stock on the bargain rack.

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Wells Fargo

This may come as a surprise to no one, but the banking sector has been a true disappointment in 2016, with stalwart Wells Fargo (WFC -1.21%) down 11% through Friday.

All banks, including Wells Fargo, are being hurt by the Federal Reserve's standing pat on interest rates. As long as the Fed keeps the federal funds target rate near historic lows, it minimizes the opportunity for banks to expand their net interest margins. The other issue for Wells Fargo has been the deterioration in crude oil and natural-gas prices, which has caused the company to boost its loan loss reserves due to its outstanding energy loans.

Despite these concerns, Wells Fargo's tumble in 2016 looks like the perfect opportunity for income investors to pick up one of Warren Buffett's largest holdings on the cheap.

What makes Wells Fargo stand out is its aversion to risky assets. Although it wasn't completely free and clear of U.S. Justice Department settlements tied to the mortgage meltdown, Wells Fargo has kept its nose clean and stuck to the basics of banking: deposits and loans. In its recently reported second-quarter results, Wells Fargo reported a 4% year-over-year increase in deposits and an even more impressive 9% improvement in average loans. All the while, with the exception of and gas loans, Wells Fargo's credit quality remains exceptionally strong, and the bank (along with a majority of its peers) passed the annual stress test run by the Fed. The result of all this was a superior return on assets of 1.2% during Q2 2016. 

Wells Fargo stock is primed to pop once lending rates return to normal levels, be it in a year or two or in a decade. Its long-tenured management team runs a tight ship when it comes to costs, and it relies heavily on its brand image to continue to attract new clients and wealthy clientele.

Boasting a 3.2% dividend yield, Wells Fargo could be worth banking on.

Image source: HollyFrontier.


Another top dividend stock that could be selling for a discount this summer is refiner HollyFrontier (HFC), which is down a whopping 38% year to date. Plunging crude prices actually helped refiners for a short time by boosting the margin between crude and their refined product, but a recent rally from a low of $26 a barrel to more than $50 a barrel has squeezed margins and sent refiners like HollyFrontier tumbling. However, this looks to be nothing more than temporary weakness.

For starters, HollyFrontier's balance sheet is in better shape than most of its peers'. This is a direct result of its organic expansion, typically fueled by free cash flow, rather than debt financing. HollyFrontier ended the first quarter with $1.3 billion in long-term debt compared to $5.6 billion in total equity. This gives HollyFrontier more flexibility than its peers may have, and it also assuages investors' concerns about low crude prices. 

As noted previously, supply and demand should also be working in HollyFrontier's favor. Crude oil prices are not expected to rocket higher overnight, so demand for petroleum-based goods, such as gasoline, could continue to grow. Even if crude prices rise, HollyFrontier should still be able to mitigate margin contraction with an uptick in production volume.

Lastly, HollyFrontier is simply cheap, as my Foolish colleague Tyler Crowe has recently pointed out. The refiner is trading at its lowest price-to-tangible-book-value ratio in about 15 years, and its return on invested capital is among the highest in the industry, which is a reflection of the company's prudent management team.

HollyFrontier's delectable 5.5% yield could have income investors jumping for joy.

Image source: Flowers Foods.

Flowers Foods

A final dividend stock you'd be smart to consider is bakery goods provider Flowers Foods (FLO -2.48%), whose stock has fallen 9% since the beginning of the year. Blame for the drop can more or less be traced to two consecutive quarters of profits that have missed Wall Street's expectations. In the most recent quarter, Flowers Foods blamed its subpar results on higher costs associated with the conversion of its Tuscaloosa bakery to an all-organic production line.

Two things make Flowers Foods attractive right now. First, the company operates in an industry that has long-term trends on its side. The U.S. (and global) population is growing, meaning more food will be demanded as time passes. Flowers brands such as Wonder Bread and Nature's Own essentially provide a basic-need good that gives the company pretty solid pricing power. Flowers Foods can also keep a lid on its costs and focus its efforts on marketing its brand to help maintain its margins while demand improves.

Secondly, Flowers is catering to the growing demand for organic foods and brands. Consumers are willing to pay more for organic products if they're believed to have superior nutritional content, or at least fewer artificial ingredients. These products typically have higher margins and could offer long-tail growth opportunities for Flowers Foods.

Following its 9% tumble this year, Flowers' dividend yield is now a scrumptious 3.3%. This stock could be ripe for a bite.