Buying dividend stocks when they've fallen in value can be advantageous to investors because not only can you lock in a higher-than-usual yield, but you can also set yourself up for some gains in the future. As long as the business remains sound and its financials are strong, buying a dividend stock near its low could be a move that pays off significantly for you in the long run.
A couple of stocks that offer impressive yields and are near their 52-week lows are Medtronic (MDT 0.14%) and Lumen Technologies (LUMN). Both have generous yields that are much higher than the S&P 500 average of 1.7% and can be great stocks to invest $5,000 into now.
1. Medtronic
Medtronic is a medical device company that operates in 150 countries, helping people with more than 70 different conditions. It should make for a relatively stable investment. However, year to date, its shares are down 14%, struggling right along with the S&P 500, which is down by 18%.
The problem is that the business is struggling with supply chain issues, and sales for the period ended July 29 were down around 8%, which also included a negative impact from foreign exchange.
On the company's most recent earnings call, management also said that while for the most part hospital procedures are back to normal levels again, "COVID is still causing procedure cancellations and deferrals in some pockets around the world." One country in particular, where Medtronic struggled in was China, where revenue declined 9% as a result of COVID-related lockdowns.
But these are all temporary issues that won't keep Medtronic's business down in the long term. At less than $89, the stock is just a few dollars away from its 52-week low of $85.66. Its valuation might look rich with the stock trading at 23 times its earnings, but as supply chain issues improve, so too should the company's profitability.
What's encouraging is that even though Medtronic's business is facing challenges, its dividend remains fairly safe. Medtronic's payout ratio is less than 70%, and with the declining share price, its yield is now at 3%. On a $5,000 investment, that would mean an extra $150 in recurring income each year.
Medtronic is also a Dividend Aristocrat -- a company that has paid and increased its base dividend every year for at least 25 consecutive years -- which suggests that your dividend income will also increase over the years as you hold on to the stock.
2. Lumen Technologies
Telecom company Lumen, formerly known as CenturyLink, pays an incredibly high yield of 11%. On a $5,000 investment, the current yield could generate more than $550 in annual revenue for you. This high a yield hasn't been by design; shares of Lumen are down 30% this year. Prior to that decline, the yield was closer to 7%.
The company's declining sales in recent years have turned many investors off of the stock and are the reason it's been struggling, especially in a bear market. But Lumen's future should look a whole lot better, because the company is upgrading its network. Its new Quantum Fiber service is faster, comes with no contracts or data caps, and promises 99.9% reliability. The company is continuing to invest in the service as it looks to expand and reach more customers. Currently, it's operating in 12 states, covering 20 different markets.
Investors will need to be patient with Lumen, but the stock has the potential to deliver some strong returns if the Quantum Fiber service does as well as the company hopes it will. In the meantime, the dividend still looks safe. For the period ending June 30, the company's diluted earnings per share totaled $0.34 and were higher than the $0.25 that Lumen pays out in dividends every quarter. This year, the company also projects that its free cash flow will be at least $2 billion -- roughly double what it paid out in dividends during the past four quarters.
Lumen is a bit of a contrarian pick, but it could prove to be a good one. Between the high dividend yield and the potential for the company to get back into the good graces of dividend investors if its results improve, it could be a source of not just recurring income but some impressive capital gains.
