The consumer price index increased 9.1% year over year in June 2022, which was above the average analyst expectation of 8.8%.

This demonstrates that the Federal Reserve's interest rate hikes have yet to tame inflation. Investors are expecting a full percentage point increase in interest rates to be announced at the next meeting later this month. These factors have led the S&P 500 index to drop 21% in 2022 so far. 

This has made already cheap stocks downright bargains. Here are two deeply undervalued dividend stocks that investors should think about buying on the dip now and holding over the long run.

A businessperson analyzes data.

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1. Altria Group

With a market capitalization of $75 billion, Altria Group (MO -2.77%) is the largest tobacco company with operations solely in the U.S. market. Based on its size, you'd expect the cigarette maker to control a significant share of the U.S. market. And with a 48.1% retail share in the first quarter stemming largely from its well-known Marlboro brand, Altria Group doesn't disappoint. 

Cigarette volume has been declining for decades in the U.S. and is showing no signs of relenting; adjusted for calendar differences and trade inventory movements, total estimated domestic cigarette industry volumes fell 5.5% in 2021. Yet analysts believe that Altria Group's non-GAAP (adjusted) diluted earnings per share (EPS) will grow at 5% annually over the next five years. How is this the case for a company whose core business is shrinking? 

Well, Altria Group's dominance in the U.S. market and the inelasticity of cigarettes allow it to pass price hikes on to consumers. This just barely offsets volume declines, which is the formula to keep net revenue moving 1% to 2% higher each year. The company's share repurchase program also reduces the share count by 2% to 3% annually. And steadily improving cost efficiency kicks in another 1% to 2% each year.

Altria Group also owns a sizable 10% stake in Anheuser-Busch Inbev and its wholly owned oral tobacco nicotine brand called on! is continuing to grow its market share. The stock has fallen 14% year to date, which has pushed its dividend yield up to a market-crushing 8.7%. And given that Altria Group's dividend payout ratio will be around 75% in 2022, the dividend doesn't appear to be too good to be true. 

Better yet, Altria Group is trading at a bargain-bin, forward price-to-earnings (P/E) ratio of 8.6. For context, this is well below the tobacco industry average forward P/E ratio of 12.3. Investors with an extra $500 could pick up 12 shares of Altria Group at the current $42 share price. 

2. Williams-Sonoma

With approximately 66% of its $8.2 billion in total revenue derived from e-commerce in 2021, Williams-Sonoma (WSM 0.43%) is a leading retailer of home products like kitchenware and home furnishings. Despite its status as a leader in its industry, the company holds a less than 3% market share in the $830 billion global home products industry. 

This gives Williams-Sonoma a long runway for growth. With 22% growth in 2021, Williams-Sonoma trounced the U.S. home furnishings industry growth rate of 7% for the year. And based on its iconic brands like Pottery Barn, West Elm, and the eponymous Williams-Sonoma, it's not unreasonable to expect the company to continue gaining market share. This is why its management team expects annual revenue to reach $10 billion by 2024. 

Along with steady margins, analysts believe that Williams-Sonoma will generate 5% annual earnings growth through the next five years. Since its dividend payout ratio will be 19% in 2022, Williams-Sonoma should have flexibility to keep growing its dividend in the high single digits annually. This is an attractive amount of growth for a stock with a 2.5% dividend yield. 

And shares of Williams-Sonoma can be snatched up at a forward P/E ratio of just 7.9. Investors with $500 set aside could purchase four shares of the stock at the current $127 share price.