If a dividend stock has fallen in value, it gives investors an opportunity to lock in a higher dividend yield while potentially positioning themselves for a larger profit down the road if it recovers. That doesn't always happen, but if you stick with quality, profitable businesses, it's a very real possibility.
Three terrific options for investors today, whether you're focused on the future or sheer dividend income, are Pfizer (PFE -1.05%), Seagate Technology (NYSE: STX), and Big Lots (BIG -1.72%). They have all been declining this year but are also paying well above the S&P 500 dividend yield, which is less than 1.4%.
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1. Pfizer
For all its impressive revenue growth, investors appear to be cautious about buying shares of Pfizer this year. The healthcare stock's performance in 2022 has only been slightly worse than the decline in the S&P 500 (8% vs. a 7% drop in the index). That's even with the company projecting a year where sales might top $102 billion -- representing year-over-year growth of 26%. Although analysts are hungry for more, investors shouldn't overlook what steal of a deal this healthcare stock may be right now.
Concerns over what happens in a post-COVID-19 world for this vaccine maker is likely why the valuation is down. But that may not be something investors need to worry over. With the CDC recently giving the green light for a fourth shot for people with weak immune systems, there isn't a sign that these booster shots are going to end just yet. And in the past, Pfizer CEO Albert Bourla suggested that an annual COVID-19 vaccine may be a better option than frequent booster shots.
Investors who are perhaps looking too far ahead and assuming COVID revenue will be long gone in a year or two could be making a big mistake. Plus, with all the money the company makes from the vaccine, the healthcare giant is in a great position to expand its operations.
This month, Pfizer announced it will be acquiring a clinical-stage company, ReViral, for $525 million. The business develops antiviral therapeutics for the respiratory syncytial virus. Pfizer believes it could generate more than $1.5 billion in annual revenue from its products. Pfizer could make more moves like this in the future, especially if it has another strong year in 2022 like the one it had in 2021 when it brought in just under $30 billion in free cash flow.
Whatever happens, Pfizer will still have opportunities to grow beyond this year. With the stock down in 2022, now may be a great time to buy it and secure its dividend, which yields 2.9%. At a forward price-to-earnings (P/E) multiple of 7.4, the stock is also incredibly cheap -- the average stock in the S&P 500 trades at 19 times its future earnings.
2. Seagate
Investors can earn a higher payout with Seagate, which currently yields 3.3%. The computer hardware company specializes in storage solutions that make it easy for people to expand their hard drive space and take portable drives wherever they work. It even offers cloud storage as a service for companies to move, manage, and protect their data online.
The business isn't a growth machine, but its sales have been fairly consistent over the years, typically coming in at between $10 billion and $11 billion annually. Over the long term, the company projects modest growth of between 3% and 6%. That stability, combined with a profit margin that's normally around 10% of revenue, can make this a safe dividend stock to own.
Regardless of whether a company's workforce will be working remotely or physically at an office, the need for storage isn't going away. Projections from Market Data Forecast have the global cloud storage market growing at a compounded annual rate of 25.2% until 2026. That makes Seagate a promising investment for the long term. And the stock's 25% year-to-date decline in 2022 has made it an even more attractive buy as it now trades at a forward P/E of 9.6.
3. Big Lots
The highest yield on this list belongs to discount retailer Big Lots. At 3.4%, it pays a full two percentage points higher than the S&P 500 average. The company faces headwinds due to inflation and supply-chain challenges, leading Big Lots to conservatively forecast that comparable sales will be flat for the current fiscal year. But even with diluted earnings per share projected to land between $1.10 and $1.20 in this year's first quarter, that alone would be enough to cover the company's dividend, which on an annual basis pays $1.20 per share.
Even with inflation, this looks like an incredibly safe income stock to own. And if the economy heads into a recession, as some experts predict, discount retail stores could be popular places to visit this year as consumers look to keep their expenses as low as possible in an inflationary environment.
The stock is down 20% year to date, and investors are currently paying a forward P/E of just 7.4, right in line with Pfizer's valuation. Buying the stock could be a low-risk move for income investors who are worried about a recession. Big Lots' low payout ratio, combined with its stable business, makes this an underrated buy right now.
