The past several months have been bullish ones for the market. But not for every stock. Even some of the S&P 500's (^GSPC -0.19%) seemingly safe dividend stocks have been upended, even if only because so many investors would rather own far more exciting growth stocks at this time.
Veteran investors know the time to step into quality names is when they're down. Time will take care of the rest.
With that as the backdrop, here's a rundown of three solid dividend-paying S&P 500 stocks that income-minded investors might want to buy while they're still on sale and hold forever.
1. Merck
There's no denying Merck (MRK -0.48%) has become a bit too dependent on its cancer-fighting wonder drug Keytruda. The immunotherapy now accounts for half of the pharmaceutical company's total revenue. But, with its key U.S. patents set to expire in 2028 while its European patents are slated to expire in 2031, the company's struggle to come up with anything to fully replace these jeopardized sales is a big reason shares are down 39% from last year's peak. Well, that and headwinds for its HPV vaccine Gardasil in China.
The thing is, the stock sellers may have overshot their target, failing to recognize just how promising this pharmaceutical giant's pipeline actually is.
Take MK-1022 as an example. Although the non-small cell lung cancer market it's addressing is a relatively crowded one, according to several analysts, this antibody-drug conjugate capable of delivering chemotherapy directly to diseased cells could, at its peak, produce annual sales of around $5 billion. The company's cholesterol drug MK-0616 could do just as well, and like MK-1022, is showing great promise in late-stage trials.
All told, Merck contends it's got as many as 20 drugs with blockbuster potential in the works that are collectively capable of driving more than $50 billion in annual sales by the mid-2030s. Approval and sales are not guaranteed, but that's more than Keytruda would have ever been able to produce on its own.
There will certainly be some developmental stumbles and setbacks along the way. With shares priced at less than 9 times this year's expected earnings, though -- and with its dividend yield pumped up to 4% -- all of Merck's current and future challenges are already priced in.
2. Target
General merchandise retailer Target (TGT -2.34%) has been out of its element for some time now. In a normal, reasonably healthy economic environment, consumers are willing to pay its sometimes slightly higher prices for a premium experience that rival Walmart can't quite match. Given the inflation-riddled economic lethargy the country (as well as the rest of the world) has suffered since 2022, though, Target's struggled to draw its usual crowd. It's also been caught in the country's DEI (diversity, equity, and inclusion) fracas. Its first-quarter same-store sales dip of 3.8% extended a long streak of rather persistent weakness. That's why the stock's down 60% from its late-2021 pandemic-prompted peak.
What if, however, the domestic economy was going to defy the apparent odds and ease back into a place of economic strength rather than sliding into a long-expected recession?
Don't rule out the possibility. While plenty of people are lamenting the high cost of everything, the Conference Board said its consumer confidence index rose two points in July. And although accounting firm EY expects the country's GDP growth to cool to a pace of 1.5% this year en route to 1.4% next year, that's still growth. Let's also not forget that the second quarter's initial GDP growth estimate of 3% handily topped estimates of 2.5% even if it was tariff uncertainty behind much of it. Growth is still growth.
The dark cloud of future tariffs and the prices they raise is still in place, but even then it increasingly looks like President Donald Trump is using tariffs as a negotiating tool to get what he wants rather than as a means of raising revenue. Apple's iPhone, for instance, was recently made exempt from semiconductor tariffs in exchange for CEO Tim Cook's promise to invest in more American manufacturing of the device's components.
Image source: Getty Images.
It's admittedly not the easiest of bets to make at this time. Most factors seems to still be working against Target's unique "cheap chic" premium-value approach to merchandising. And maybe the U.S. economy will remain tepid.
As the old adage goes, though, expect it when you least expect. Most people didn't expect 2002's or 2009's economic recoveries either until they were well underway. Time really does eventually heal all wounds. Know that the company is also (finally) making some meaningful strategic changes.
And, priced at about 14 times this year's expected earnings and with a forward-looking dividend yield of 4.3%, investors are being paid pretty well for the minimal amount of risk they are taking with Target.
3. PepsiCo
Finally, add PepsiCo (PEP -0.68%) to your list of S&P 500 dividend stocks to buy and hold forever while you can plug into its forward-looking yield of just under 4% as I write this. The 26% setback it's suffered since its 2023 high has likely run its course and is ready to reverse.
The difference between this stock's performance and rival Coca-Cola's is stark, but understandable. Unlike Coke, PepsiCo owns and operates the majority of its own bottling facilities, where much of the cost of the beverage business lies. When the cost of everything ranging from commodities to logistics to utilities started to rise in earnest a couple of years back, it took a sizable bite out of a bottom line that's already built on paper-thin profit margins. And price increases weren't necessarily an easy solution.
Perhaps PepsiCo's bigger challenge over the course of the past three years, however, was on the food front, which is even less fiscally flexible than the beverage business. See, PepsiCo also owns Frito-Lay, which is parent to iconic snack chip brands like Cheetos, Doritos, and, of course, Lay's potato chips. It also owns Quaker Oats, a brand that's about more than just a hot bowl for breakfast. Consumers have been particularly cost-conscious when it comes to these sorts of groceries.
As is the case with Target's business, though, PepsiCo's company-specific headwinds may be about to ease if not outright cease. And not just because of the potentially improving economic backdrop resulting from the waning inflation the Federal Reserve's Open Market Committee believes will continue cooling through 2027. PepsiCo's also adapting to the new normal. Just within the past few months PepsiCo has unveiled several healthier snack chip options as well as beverage choices like a prebiotic cola. Meanwhile, the company's embraced technology to tackle tricky tasks like optimizing its supply chain or making its distribution centers more efficient.
None of these will necessarily reignite sales growth in a major way on their own. All of them, however, position PepsiCo for to take advantage of consumers' rekindled splurging and ever-growing healthy-snacking movement.
