The stock market has posted strong performance in 2024, with the S&P500 The index rose by about 20% over that stretch. On the other hand, not every company included in the benchmark index has been a big winner this year.
After the recent pullback, some promising S&P 500 companies have fallen to attractive valuations. And for a few dividend-paying companies in the index, the recent sell-off has also pushed their yields higher.
If you’re looking for stocks that can generate passive income and generate capital growth, read on to see why these idiot.com contributors think investing in Nike (NYSE:NKE) And Bath and body works (NYSE:BBWI)two beaten S&P 500 dividend stocks would be a great move right now.
Have what it takes to be a long-term winner
Keith Noonan (Nike): It’s been a tough year for Nike. The growth bets in China have not paid off, and performance on that front does not look likely to improve significantly in the near term.
Making matters worse, the athletic footwear and apparel company is facing new challenges due to increasing competition in the US and Europe, and store closures for key retail partners, including Foot Lockercreate more headwind.
In its last guidance update, Nike said it expected revenue to decline about 10% year-over-year in the first quarter of the current fiscal year (ending August 31). Meanwhile, management expected full-year revenue to decline by mid-single digits.
The company’s share price is down about 18% year to date due to the challenging outlook, and the stock is down 50% from its lifetime high.
Major selloffs have pushed Nike’s dividend yield to roughly 1.7%, above the S&P 500 average. The returns may not seem large compared to some companies in the benchmark index, but chances are the payout will continue to rise at above-average rates.
With the latest dividend increase, the company increased its payout by 9%. It’s up 51% over the past five years and 164% over the past decade, and it’s likely to deliver another substantial dividend increase this fall.
Obviously, payout increases won’t mean much to investors in the short term if the company fails to overcome its challenges and return to growth. But there are good reasons to bet on this defeated market leader.
The company continues to have one of the strongest brands in the world, along with infrastructure and distribution advantages unmatched in its sector. If you’re looking for attractively valued dividend stocks that can deliver big profits over the long term, Nike seems like a smart buy right now.
A sweet-smelling ATM
Anders Bylund (bath and body works): This personal care and home goods company may not look like an exciting investment these days, but Bath & Body Works offers an attractive investment opportunity. The company, formerly known as L Brands, was spun off Victoria’s secret (NYSE: VSCO) in 2021 to focus on the Bath & Body Works brand. Sales have been flat over the past three years.
But I’m not looking for a sky-high growth story here. If you want generous dividends backed by robust cash flows, Bath & Body Works delivers on both counts.
It pays quarterly dividends of $0.20 per share, which equates to $0.80 in annual dividends. That equates to a return of 2.7% at current share prices. By comparison, the average return of S&P 500 stocks is just 1.5%.
Moreover, the stock appears to be severely undervalued. Bath & Body Works has some of the strongest profit margins in specialty retail, ahead of market enthusiasts like Ultimate beauty (NASDAQ: ULTA) And Five below (NASDAQ: FIVE). The company is also an effective cash machine, converting 9% of incoming revenue into free cash flow.
Yet the shares change hands at the downright dismal valuation of 7.7 times trailing earnings, or 0.9 times sales. The stock chart shows a 39% decline from the 52-week highs of early June and a 61% decline from the lifetime peak.
By the way, I’m not the only one on the rosy side of the fence. Bath & Body Works comes with a consensus Buy rating from Wall Street analysts with an average price target of 48% above current levels.
Even the short sellers are staying away from this stock. Currently, only 4.1% of shares are sold short, far below Ulta’s 6.9% and Five Below’s short interest of 8.3%. Don’t even get me started on Victoria’s Secret, whose stock has a risky value of 11.4% in this metric.
So you can lock in that nice dividend yield today at a low share price, which should also set you up for robust price gains in this bull market. That’s a win-win in my book.
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Anders Bylund has no position in any of the stocks mentioned. Keith Noonan has no positions in the stocks mentioned. The Motley Fool holds and recommends positions in Nike and Ulta Beauty. The Motley Fool recommends Five Below and Foot Locker. The Motley Fool has a disclosure policy.
There’s a Bull Market: Two Great S&P 500 Dividend Stocks Down 50% and 61% to Buy Now Originally published by The Motley Fool
