3 Magnificent S&P 500 Dividend Stocks Down 20% to 33% to Buy and Hold Forever

The S&P 500 index recently slipped over 10% from its peak and officially entered the correction territory. Although it has rebounded since, the heightened volatility amid economic and geopolitical concerns and stubborn inflation have put dividend stocks in the spotlight.

Stocks that pay a regular dividend generate steady income for shareholders. Then there are some that also grow their dividend payouts regularly, which means investors can expect fatter dividend checks every year regardless of what the stock markets do. Now that's a compelling reason to buy dividend stocks, and there are opportunities you wouldn't want to miss now.

Here are three great S&P 500 dividend stocks that are down between 20% and 33% from their 52-week highs that you'd want to buy now and hold practically forever.

A no-brainer dividend stock to buy

Shares of NextEra Energy (NYSE: NEE) have fallen nearly 17% in the past six months and are down nearly 20% from their 52-week high, as of this writing. The company, however, is a leader in its industry and is increasing its dividend by double-digit percentages every year.

NextEra Energy's electric utility, Florida Power & Light (FPL), was created 100 years ago and is the largest electric utility in North America today. That's not all. NextEra Energy also built what was the largest wind farm in the world in 2001. And it's the largest producer of renewable energy from wind and solar today, as well as a leader in battery storage.

To be the frontrunner in utility and renewable energy is truly formidable, and it's the kind of classic business combination that perfectly combines stability with growth. So while its utility generates steady cash flows, renewable energy has been the key to the double-digit compound annual growth in NextEra's adjusted earnings per share (EPS) and dividends over the past decade.

NEE data by YCharts.

NextEra Energy commissioned 8.7 gigawatts (GW) of new renewables storage capacity across FPL and renewables in 2024 alone, has a backlog of over 25 GW, is targeting 6% to 8% growth in adjusted EPS through 2027, and expects operating cash flow to grow at or above its EPS growth rate. With the stock also aiming to increase dividends yielding 3.2% by at least 10% through 2026, NextEra Energy is a magnificent S&P 500 dividend stock to buy now and hold forever.

Down but not out

Devon Energy (NYSE: DVN) stock saw massive buying between 2021 and 2023 after it introduced the oil and gas industry's first variable-dividend policy. Simply put, although Devon already paid a fixed dividend, it started topping it up with an extra dividend of up to 50% of the excess free cash flow (FCF) every quarter.

However, Devon's variable dividends have fallen dramatically over time, with management even foregoing them in the past two quarters after the acquisition of Grayson Mill Energy's Williston basin business last year for $5 billion. I see nothing wrong here, as Devon is using cash to repay debt instead and is targeting a $2.5 billion reduction in debt in two years. That's a good thing as it will strengthen its balance sheet. Meanwhile, Devon has expanded its share-repurchase program by 67% to $5 billion.

Above all, Devon increased its fixed dividend by 9% in February and expects to return 70% of its cash flows to shareholders in 2025 in dividends and share repurchases. Devon's fixed dividend per share, in fact, has more than doubled since 2021. Investors may have dumped Devon stock after its dividend "cuts," but it's not really a cut, as a variable dividend is just that: variable. With Devon shares down nearly 33% from their 52-week high and yielding 2.6%, it's one beaten-down S&P 500 dividend stock to buy now and hold for the long term.

This S&P 500 heavyweight pays highly reliable dividends

Caterpillar (NYSE: CAT), which manufactures construction and mining equipment, and off-highway diesel and natural gas engines and gas turbines, recently reported weak numbers for financial year 2024 primarily because of macroheadwinds.

If you look at the bigger picture though, Caterpillar has survived bigger storms over its 100 years of existence and grown aggressively in recent years. Its FCF, for instance, has doubled in the past five years. That provides a solid base for the industrial giant to lift its dividends higher. In 2024, Caterpillar generated $9.4 billion in FCF from its core machinery, energy, and transportation businesses despite lower revenue, and that was near the top end of its target range of $5 billion to $10 billion.

CAT data by YCharts.

Caterpillar has increased its dividend per share for 31 consecutive years now. That speaks volumes about the company's resiliency and capital efficiency, considering that Caterpillar is a cyclical stock, and its fortunes ebb and flow with the economy. More importantly, its dividends, when reinvested, have contributed significantly to the stock's returns, which is why even a low yield of 1.6% makes Caterpillar such a great dividend stock. With its shares falling almost 13% in six months and 20% from their 52-week high, as of this writing, Caterpillar is the kind of S&P dividend stock you can buy on every dip and hold for years to to come.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.