3 Magnificent S&P 500 Dividend Stocks Down 36% to 64% to Buy and Hold Forever

Like bargains? Need income? You can find undervalued income-producing stocks. Plenty of them are even familiar names found within the S&P 500 index. Here’s a closer look at three such stocks that might be at home in your portfolio.

Ford Motor Company

There’s no denying the automobile industry is undergoing multiple sea changes that don’t favor Detroit’s iconic names, like Ford Motor Company (F -1.17%). Not only are cars lasting longer, for example, but automobile ownership is on the decline. Fewer younger people are getting driver’s licenses, opting for Uber or Lyft instead.

It would also be naive to pretend Ford has become hypercompetitive within the growing electric vehicle (EV) arena. Auto information site CarEdge reports Ford’s fourth-quarter U.S. market share at only 8.7%, behind Tesla and General Motors, but also behind Hyundai and Kia.

Given all of this, it’s not surprising that the carmaker’s profits haven’t really grown since the early 1990s, even if its revenue has. That’s the chief reason Ford stock has underperformed since the early 2000s. Indeed, not only are shares down 64% from their early 2022 peak, they are also currently priced where they were at the beginning of 1995. There’s just not a convincing argument that growth is anywhere on the horizon.

Now take a step back and look at the bigger picture. Ford may not be growing much (if at all) right now, but with a forward-looking dividend yield of 6.5% based on a dependable quarterly payment of $0.15 per share, it’s dishing out more than comparably risky bonds or stocks. Also note that the company has chosen to reward shareholders with the occasional special bonus dividend rather than committing to a higher dividend payment which might put it under financial strain. Although these one-off payments shouldn’t be counted on by shareholders who need dividends to pay their bills, they’re still income.

There’s also straight-up value here. While Ford’s growth is tepid to nonexistent, this stock’s forward-looking price/earnings ratio is a dirt-cheap 5.5 based on projected earnings. With the exception of the COVID-19-prompted disruption of 2020 and 2021, Ford’s earnings proven mostly resilient of late.

Merck

It’s been a tough few months for Merck (MRK 2.08%) shareholders. This pharmaceutical stock’s now down 36% from last March’s peak, with most of this weakness coming after last September in response to a couple of rounds of disappointing quarters. Its diabetes treatments Januvia and Janumet are now facing stiff price competition, while its HPV vaccine Gardasil is running into headwinds in China.

And to be fair, these are legitimate concerns. The market, however, has possibly overblown them while losing sight of the remaining potential of its flagship cancer-fighting drug, Keytruda.

Although collective sales for Januvia and Janumet fell 33% last year (when including the adverse impact of changing currency-exchange rates), these diabetes treatments combined still account for less than 4% of the pharmaceutical giant’s total revenue. Gardasil is a measurably bigger franchise at a little over 13% of Merck’s revenue, but its sales ended up being mostly flat in 2024, overcoming at least some of its weakness in China.

Conversely, Keytruda’s sales improved 18% to $29.5 billion last year to make up 46% of the company’s top line. And with the drug now being tested in eight additional clinical trials while more and more oncologists prescribe it, analysts believe its yearly sales could surpass $33 billion in 2027.

Sure, that’s when its patent protection starts deteriorating. This doesn’t necessarily mean the end of Keytruda as a workhorse, though. The company can do things to extend its marketable life.

In the meantime, investors are forgetting that Merck has a long history of either buying or developing new blockbusters. It acquired Keytruda, for instance, when the company acquired Schering-Plough back in 2009. In this same vein, in November it secured the rights to a promising immunotherapy being developed by China’s LaNova Medicines. It’s making rapid progress with Welireg as well.

But what does any of that have to do with owning this dividend-paying stock forever? The point is, while it may not be a high-growth name and will likely never completely replace Keytruda’s revenue, Merck has a long history of finding new ways to grow its top and bottom lines, which in turn has allowed it to raise its dividend payments for 14 years in a row.

Newcomers will be plugging into it while the stock’s forward-looking dividend yield stands at just under 3.9%.

AES

Finally, The AES Corporation (AES -0.75%) is a great dividend stock to buy while shares are down 64% from their late-2022 peak, which in turn has inflated its forward-looking dividend yield up to 6.7%.

AES is a utility-scale power wholesaler, selling electricity to utility companies that would rather purchase it than produce it themselves. The company is expected to do $13 billion worth of business this year, capitalizing on this relatively new norm for the grid-equipped industry.

But this business isn’t as simple as it seems. The industry is making a transition from traditional power sources like fossil fuels to renewables such as solar and wind and even clean-energy alternatives like nuclear power. These environmentally friendly options are catching on. They’re neither quick nor cheap to put in place, however, and AES was arguably too aggressive with its efforts to make this transition to renewables, taking on too much debt, beginning in 2022 when shares began their long-lived tumble.

AES Revenue (TTM) data by YCharts

But there’s still a strong bullish argument to be made here. Industry research outfit Precedence Research believes the renewable energy business is set to grow at an annualized clip of more than 17% through 2034 regardless of prevailing political policy. AES still insists its recent revenue-growth pace will persist at least until 2027.

It should be accompanied by profit progress, too. And with a backlog of 12.7 gigawatts’ worth of long-term contracts versus its current power production capacity of around 22 gigawatts, this optimistic outlook isn’t tough to believe even if most investors aren’t buying it right now — figuratively as well as literally.

This might help: While most investors are doubters right now, most analysts aren’t. Despite the stock’s prolonged weakness, the vast majority of the analyst community currently considers this ticker a strong buy, and it sports a consensus price target of $16.40. That’s nearly 60% better than the stock’s present price.

The stock’s dividend remains reasonably well protected by the industrywide tailwind and the strength of AES’s sound management.