3 Magnificent S&P 500 Dividend Stocks Down 15% to 65% to Buy and Hold Forever

When a great company runs into a short-term problem or just mere skepticism, it can make for an excellent opportunity for the long-term investor. And if such a company pays a rising dividend that can grow over time, that's a big future passive income opportunity.

Currently, skepticism abounds for the following three S&P 500 dividend stocks. But scooping up shares today could pay big dividends -- pun intended -- over the long run.

Alphabet

The "Magnificent Seven" stocks are generally some of the strongest, most resilient, and innovative companies around, and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is by far the cheapest of the bunch. Shares trade at just around 20 times earnings, not only a discount to peers but even the overall market.

And while its dividend is only 0.5%, Alphabet's payout ratio is just 8.9%, leaving huge room for growth. Instead of a bigger dividend, Alphabet is returning cash to shareholders via share repurchases, while also investing in future AI growth.

Of course, the reason Alphabet's stock has been under pressure is due to concerns over its main cash cow, Google Search, and the threat posed by AI chatbots.

While that is something to monitor, Alphabet has been innovating in AI rapidly, delivering "AI Overviews" when users search a topic, which management claims monetizes at the same rate as Search. The company also unveiled "AI Mode" in Google Search on May 20, offering the experience of a chatbot within the Search ecosystem.

Furthermore, Alphabet has been rapidly catching up to AI chatbot leader OpenAI in large language models (LLMs). When Alphabet's Gemini 2.5 LLM was released on March 25, it immediately rocketed up the developer rankings among top-performing LLMs, seizing the current lead for many applications.

Given Alphabet's technical talent and financial resources, I'd expect the company to muddle through this transition. But even if Search growth slows down, there are other AI-related growth opportunities related to Gemini-powered chatbots and agents.

Meanwhile, Alphabet has three other large and growing businesses the market appears to be ignoring: YouTube, Google Cloud, and Waymo. YouTube is the the largest streaming company in the world, and growing by double-digits. Google Cloud, while the third-place infrastructure platform, still grew 28% last quarter to a $50 billion annual revenue run-rate, and has been profitable since the first quarter of 2023.

And then there's Waymo, which has taken a leading pole position in the autonomous taxi industry. While Tesla is ramping up its rival service this month, Waymo has a five-year head start, has doubled its rides over the past five months, and is now doing over 250,000 autonomous rides a week across four cities.

Applied Materials

Despite a recent bounce, semiconductor equipment supplier Applied Materials (NASDAQ: AMAT) is still 33% below its July 2024 highs. However, Applied is one of the highest-quality businesses you'll find in tech. It's a leader in etch and deposition semiconductor equipment, with additional franchises in metrology and ion implant machines. These machines play key parts in the production of leading-edge semiconductors and memory needed for AI. Applied also has a highly profitable services business attached to that growing installed base of equipment, with recurring-like services making up 22% of the company's revenue last quarter.

As one of just a few companies that make these extremely advanced machines needed to make today's leading-edge semiconductors, Applied is set to win big from the AI revolution. And its deep technology moat enables high margins and returns on capital.

Applied currently pays a 1.1% dividend, but like Alphabet, it also pays most of its shareholder returns out in the form of share repurchases, with a low dividend payout ratio of just 19.5%. That leaves a lot of room to grow that dividend; in fact, Applied just raised its dividend by 15% this year, and I'd expect more double-digit increases into the future.

Image source: Getty Images.

Target

Although its business isn't quite as robust and doesn't have the technology growth prospects of Alphabet or Applied Materials, retailer Target (NYSE: TGT) is much cheaper, trading at just 11 times earnings, with a hefty 4.6% dividend. The stock is also down a whopping 64% from its all-time highs.

Yes, Target is seeing some declines in revenue this year, but the company is still going to be profitable. Unlike rivals Walmart and Costco, Target isn't known for ultra-low prices. But Target stores are still competitive, and are usually in more convenient locations.

Although it stocks a lot of everyday items, Target also tilts more toward discretionary purchase items such as apparel. With the high inflationary period of the last few years and overhang of tariffs, consumers have tightened their their belts and are making fewer discretionary purchases, hurting Target's market share.

However, the inflation of the past few years now seems to finally be ebbing. If it does, a rebound could be in the cards.

Meanwhile, Target management has pointed to some green shoots in the business. For instance, the digital business grew in the mid-single digits last quarter, with 36% growth in same-day delivery. And Target said it has improved its mitigation of "shrink," or theft, which had increased since the pandemic.

Target has been around since 1902, and CEO Brian Cornell has steered the company through several crises before. Investors should expect Target to continue to adapt and recover. If the business merely stabilizes, the stock could still do well going forward, in light of its beaten-down valuation.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein and/or hos clients have positions in Alphabet, Applied Materials, and Costco Wholesale. The Motley Fool has positions in and recommends Alphabet, Applied Materials, Costco Wholesale, Target, Tesla, and Walmart. The Motley Fool has a disclosure policy.