3 Magnificent S&P 500 Dividend Stocks Down 33% to 40% to Buy and Hold Forever -- Including United Parcel Service (UPS) and Target (TGT)

Key Points

• These three stocks have fallen sharply, pushing up their dividend yields.

• Each of them faces some challenges, but they may overcome them.

• If they do, this will turn out to have been a great time to buy.

• 10 stocks we like better than United Parcel Service ›

Dividends are a wonderful thing, because healthy and growing dividend-paying stocks will tend to keep paying their shareholders regularly, no matter what the overall economy is doing. Better still, they'll generally increase their payouts over time -- often annually.

Extra-generous dividend yields can be had when a stock swoons. That's explained by simple math. A dividend yield is simply a company's total annual payout divided by its current share price. So an $80 stock with a quarterly dividend of $1 (that's $4 on an annual basis) would have a yield of 5% ($4 divided by $80 is 0.05, or 5%).

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In that example, if the stock price falls to, say, $60, you'd divide $4 by $60, getting 0.067, or 6.7%. See? Lower stock prices boost dividend yields, all else remaining the same.

Image source: Getty Images.

Here, then, are three S&P 500 dividend payers that have sunk 33% or more so far this year. Each has turned in magnificent performances in the past and each has a promising future, so see if any deserve a closer look.

1. United Parcel Service

Let's start with United Parcel Service (NYSE: UPS), whose stock is down about 33% year to date -- and which recently yielded a whopping 7.8%. (So if you invest, say, $5,000 in UPS, you can expect about $390 in annual income.)

Why are UPS shares down? Well, our economy is on uncertain ground these days, with many people worried about rising prices, the effect of tariffs, and perhaps even job security. So online shopping isn't happening as much as it might. Another issue is self-inflicted. UPS has shrunk its business with Amazon.com, which has gone on to become a major delivery service on its own.

Only invest in UPS if you're bullish that it can do well over time. I think it can, as I don't see e-commerce as any kind of fleeting fad. Its stock certainly looks appealing at recent levels, with a recent forward-looking price-to-earnings (P/E) ratio of 11.3, well below its five-year average of 15.8.

2. Target

Target (NYSE: TGT) is a familiar retailer, with $107 billion in net sales in 2024 and more than 45 owned brands. It boasts 1,989 stores in the U.S. and employs more than 400,000 people. (Wow!) Target also gives 5% of its profits back to its communities, amounting to many millions each month.

It, too, has suffered a setback, with its shares recently down about 35% year to date. This is partly due to a decision to abandon its diversity, equity, and inclusion (DEI) policy, and partly due to supply chain issues from a few years ago. To many investors, these are temporary and fixable challenges -- but investors need to decide for themselves about any company.

Target's dividend recently yielded 5.3%, and when you factor in recent share repurchases, its total yield for shareholders was recently 8.02%. That dividend has grown over time, too, by an average annual rate of 8.8% over the past decade.

The stock's recent forward P/E ratio of 11.8 is well below the five-year average of 16.2, suggesting that the stock is undervalued. If you're a long-term believer in Target, the stock will pay you well to be patient for a turnaround.

3. Constellation Brands

Constellation Brands (NYSE: STZ) is down 40% year to date as I write this, and that has pushed up its dividend yield to 3.1%. Add in its significant recent share buybacks, and the company's total return to shareholders is closer to 8%.

Constellation Brands makes and sells alcoholic beverages, mainly in the U.S., Mexico, New Zealand, and Italy. Its brands include some familiar names, such as Corona, Modelo, Robert Mondavi, High West, and Casa Noble.

Why is Constellation's stock down so sharply? Drinking rates among young people have been declining in the U.S. to some degree, and both tariffs and immigration-related worries are leaving Hispanic consumers spending less on beer.

Can Constellation recover? It certainly might. The company is aiming to turn its fortunes around by focusing on its higher-end brands and cutting costs.

The stock seems undervalued at recent levels, too, with its recent forward P/E ratio of 11.3 well below the five-year average of 18.2. If you're confident that people will keep drinking beers and other adult beverages, and that Constellation can adapt as needed to changing tastes and habits, this could be a good time to buy into this stock.

Take a closer look at any of these stocks that interest you, and know that there are plenty of other attractive dividend payers out there -- and excellent dividend-focused exchange-traded funds, too.

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Selena Maranjian has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Target, and United Parcel Service. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.