3 Dirt Cheap Dividend Stocks to Buy During the Stock Market Sell-Off

Tariff tensions have rippled through the stock market, pushing the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) into correction territory. Rapid sell-offs can be jarring, no matter your risk appetite.

One way to remedy volatility is by investing in dividend stocks. Quarterly dividend payouts can be a great way to boost your passive income stream amid stock market volatility and build up some dry powder without having to sell stock.

Here's why American Express (NYSE: AXP), International Paper (NYSE: IP), and NextEra Energy (NYSE: NEE) stand out as three top dividend stocks to buy now.

Image source: Getty Images.

American Express rewards long-term investors in multiple ways

Daniel Foelber (American Express): Warren Buffett-led Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) second-largest holding -- American Express -- is down 15.1% year-to-date at the time of this writing. The sell-off could present an excellent opportunity to scoop up shares of the financial services company, especially since American Express has a price-to-earnings ratio of just 18.1.

American Express is unique because it goes beyond payment processing by issuing its own cards, checking, high-yield savings, and more. This is a distinct difference from pure-play payment processors like Visa (NYSE: V) and Mastercard (NYSE: MA), which work with financial institutions to issue cards.

American Express has a highly diversified customer base. In fiscal 2024, U.S. consumer services made up 38% of American Express' worldwide network volumes. U.S. commercial services made up 29% of volumes, international card services were 21%, and processed volumes were 12%. U.S. small and mid-sized businesses with annual revenues under $300 million are a core component of the American Express customer base, far outnumbering U.S. large and global corporations.

Thanks to its diverse customer base and multiple service offerings, American Express is a coiled spring for economic growth. But it can also be vulnerable to a slowdown in business and consumer spending. American Express charges high fees for some of its cards, but also offers generous rewards programs. The allure of those rewards programs goes down if customers don't expect to spend as much. For example, if a business is forecasting lower sales, and therefore lower expenses, then perks may not seem as appealing. In this vein, American Express is arguably riskier than pure-play payment processors, but it also has more upside potential.

Over the last five years, American Express has significantly outperformed Visa, Mastercard, the financial sector, and the S&P 500.

AXP Total Return Level data by YCharts.

The company regularly repurchases stock, has raised its dividend considerably in recent years, and has never cut its dividend since it began paying one in 1977. American Express doesn't have a high yield because the stock has been such a strong performer and because buybacks typically outpace dividend expenses.

In fiscal 2024, the company returned $7.9 billion to shareholders, with buybacks of $5.9 billion and dividends of $2 billion. If American Express didn't buy back stock and used its entire capital return program on dividends, it would yield over 5% on a trailing basis. But buybacks are a better use of capital than dividends for companies with strong future growth prospects.

All told, American Express is an exceptional business offering good value and worthy of being a foundational holding in a diversified portfolio.

This stock offers an excellent yield and trades on a good valuation

Lee Samaha (International Paper): This packaging solutions company isn't the most exciting company on the market. However, it offers investors a near 4% dividend yield and an investment in a relatively safe and mature industry. In addition, it has some underlying growth prospects from its exposure to e-commerce packaging (currently about 18% of sales).

It recently completed a deal to acquire British multinational packaging company DS Smith, creating a global player in the packaging market. This type of consolidation move typically occurs in mature industries, creating an opportunity for earnings growth by generating cost and revenue synergies through the integration of DS Smith.

Management sees its North American and European long-term growth rate at 3% to 4% with margin expansion in tow, leading to $5.5 billion to $6 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow (FCF) of $2 billion to $2.5 billion in 2027. The midpoint of the FCF forecast represents 9.1% of its current market cap. With management aiming to allocate 40% to 50% of FCF on a dividend, it implies a yield of up to 4.6% in 2027 based on the current price.

Seek value opportunities, and you'll find NextEra Energy stock

Scott Levine (NextEra Energy): With the first salvos regarding a trade war now fired, markets have been roiling for the past couple of weeks. NextEra Energy stock, for example, is now down 7.3% year to date. While this may be disconcerting for some, others will find it a great time to load up on shares with their 3.4% forward-yielding dividend.

NextEra Energy is the largest electric utility based on market cap. It also owns Florida Power & Light Company, America's largest electric utility, which sells power to about 12 million Floridians. What distinguishes the company from its peers is that it has made a concerted effort to expand its renewable energy assets. In addition to its 40 gigawatts (GW) of solar, wind, and energy storage, NextEra Energy operates a nuclear fleet representing 6 GW of capacity.

This enthusiasm for renewable energy is likely the cause of investors' concerns. In the company's recent 10-K, it noted that the imposition of tariffs on products from China could make it less financially attractive to develop additional green energy projects.

While tariffs on Chinese products could deter NextEra Energy from developing renewable energy projects, this hardly spells doom for the company. It's highly improbable that customer demand for electricity will wane. Moreover, it's important to recognize that as a regulated utility, NextEra Energy is assured certain rates of return, illustrating why utilities are highly desired investment options during times of economic uncertainty.

Investors will find that over the past 20 years, the company has maintained payout ratios -- an average 81% over the past five years -- that demonstrate a conservative approach to rewarding investors.

NEE Payout Ratio (Annual) data by YCharts.

With shares trading at 10.6 times operating cash flow, a discount to their five-year average multiple of 15, now's a great time to click the buy button on NextEra Energy stock.

Should you invest $1,000 in American Express right now?

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American Express is an advertising partner of Motley Fool Money. Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, NextEra Energy, and Visa. The Motley Fool has a disclosure policy.