It's a fact of life in the stock market -- every stock goes through a bad stretch at some point. Sometimes the down cycle can be just a few days, and sometimes it extends for a year or more and becomes hard to stomach.
But I always believe that investors should take a long-term view when considering their holdings. Because in the grand scheme of things, one bad year is a drop in the bucket of a company's lifespan. And if a company has good management and a sound business plan, then today's downturn provides prospective investors with an opportunity to take a position at a discounted price.
Three dividend stocks that I have my eye on are Pool Corp. (POOL -2.59%), International Business Machines (IBM -0.35%), and McDonald's (MCD -0.68%). These are great companies going through a bad stretch and currently are down between 23% and 30% for the year.
But I'm betting that they will turn around sooner rather than later.
Image source: Getty Images.
Pool Corp.: Down 30%
You can probably guess from the name, but Pool Corp. is in the swimming pool business. The Louisiana-based company sells swimming pool products, supplies, and parts, as well as outdoor equipment.
The challenge for Pool right now is that interest rates are high, pushing mortgages to more than 7%. The National Association of Realtors says existing home sales dropped 2% from July to August, the most recent data available, and the number of available homes on the market continues to increase. In that economic market, it's even more challenging to commit to a swimming pool installation that could cost tens of thousands of dollars.
But not all is lost. The pools currently in use need maintenance and repair, and that's been good for the company's bottom line. The company is seeing significant growth in its Pool360 program, a digital ecosystem that provides pool contractors and retailers with real-time inventory and pricing, water-testing software, and business management software. Pool360 accounted for more than 17% of the company's revenue in the second quarter.
Net sales in the quarter were $1.82 billion, up 2% from a year ago, with adjusted operating income of $275.9 million (up 1%) and adjusted diluted earnings of $5.38 per share, up 4%.
Pool stock has a dividend yield of 3.3%, providing a reliable income stream.
NASDAQ: POOL
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IBM: Down 25%
IBM has long been one of my favorite tech stocks, and part of the reason is the attractive dividend. IBM is currently yielding 3%, which is an outstanding return for a tech stock.
The company is having a bad year, however, because it got burned pretty badly in Q2 by the industry's run on memory and storage. That's why Sandisk is up 600% on the year.
NYSE: IBM
Key Data Points
But for IBM, it's been damaging to the stock price. The company missed on Q2 earnings because several big deals were delayed and failed to close before IBM shut the books on its quarter. "These conditions require our teams to execute perfectly, and this quarter we faltered," CEO Arvind Krishna wrote in a letter to shareholders.
IBM didn't have a terrible quarter. Revenue was $17.16 billion, up 1.1% from a year ago, and net income of $2.16 billion was down from $2.19 billion. I'll be interested to see if Q3 numbers bounce back when the company next reports later this month.
McDonald's: Down 23%
McDonald's has a mammoth footprint, with more than 44,000 locations worldwide. The company says it feeds 70 million people a day, and its Big Macs and fries have become quintessential fast-food staples. And it has a growing digital presence, with more than 220 million people using the McDonald's app at least once every 90 days.
NYSE: MCD
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But the second quarter wasn't a great one for the Golden Arches. McDonald's global comparable-store sales only increased 1.3% from a year ago, and the U.S. market was even softer, with just 0.8% growth.
The newest initiative is ArchIQ, an AI-powered restaurant operating system designed to improve productivity and free up employees to focus on food preparation and customers. That's part of an $8.5 billion overhaul that also includes an AI drive-through ordering tool called Archy, kitchen upgrades, and in-store lockers to streamline mobile delivery pickups.
McDonald's has plenty of work to do. In the meantime, investors who hold onto McDonald's stock are being rewarded with a 3.3% yield.
