2 Magnificent S&P 500 Dividend Stocks Down 34% to 64% to Buy and Hold Forever

Any company that sticks around long enough is going to go through some challenges at some point.

For example, consider well-known retailer Target Corporation (NYSE: TGT), down 64%, and food and beverage giant PepsiCo (NASDAQ: PEP), down 34%. These legendary companies are both working through issues that have shaken Wall Street's confidence in them, and sent their share prices sliding.

While it's no certainty that they'll figure things out -- since past results don't guarantee future success -- there are certainly reasons for both companies to be optimistic. After all, you don't string together decades of uninterrupted dividend increases by accident.

Here's why investors may want to buy these two Dividend Kings at their current bargain-level prices, and hold on to them forever.

Image source: Getty Images.

Target is dealing with temporary headwinds that should fade over time

People tend to emphasize their most recent experiences, so it becomes easy to forget just how much the world changes over the span of decades. Target has been one of America's prominent retailers for generations -- so long, in fact, that the company has paid and raised its dividend for 53 consecutive years. That means Target has endured recessions, political cycles, you name it. Yet, it continues to march on.

Admittedly, Target is working through some issues right now. The company's sales have declined over the past few years, due to a combination of things:

1. American shoppers are struggling amid continued inflation following the pandemic and high interest rates.
2. Tariff uncertainty is weighing on consumer sentiment.
3. There's fallout from its decision to dial back several diversity, equity, and inclusion (DEI) initiatives earlier this year.

Target specializes in unique store branding and merchandise partnerships. Food, beverages, and household essentials only accounted for 40% of total merchandise sales last year. Therefore, as people cut back on things they may want in favor of things they need, Target will feel that pain.

Fortunately, the economy has always been cyclical, and there's a good chance that consumer spending will bounce back over time. Additionally, Target recently announced a new Enterprise Acceleration Office, which is essentially a management shakeup to try to execute ideas faster and more effectively. Only time will tell if that works, but trying different things is a positive when the business is struggling.

There is more good news. Target is adding approximately 300 new stores over the next decade. If the company can get sales growing again and avoid any more publicity missteps, the stock could do very well from its lowly price-to-earnings (P/E) ratio of only 10.5 today. In the meantime, investors get a 4.7% dividend yield, an all-time high for Target stock, backed by a strong 60% dividend payout ratio and an investment-grade balance sheet.

PepsiCo is adjusting to a new business landscape

Fellow Dividend King PepsiCo is also struggling at the moment. There's no doubt that tighter consumer finances have weighed on shoppers, pushing some people to trade down from PepsiCo's brands to less expensive store brand products. On top of that, weight loss drugs have become arguably the hottest growth trend in healthcare. These drugs help people lose weight by essentially slowing digestion and suppressing their appetites. It's pretty obvious why that would be bad for PepsiCo's business.

But is the business dying? That's probably a stretch. PepsiCo is one of the world's largest food and beverage companies, with a remarkably diverse stable of brands, including Pepsi, Mountain Dew, Gatorade, Frito Lay, Doritos, and Quaker.

It's fair to question whether PepsiCo will grow as quickly as it did a decade ago, but this company should remain fairly resilient. PepsiCo's dividend payout ratio is still manageable at 72%, and the company's investment-grade balance sheet is a financial security blanket.

So, what should investors look for? As with Target, healthier consumer spending would bode well for PepsiCo's business. On the weight loss drug front, give PepsiCo some credit. Management has already acquired some healthier food and beverage brands, and innovations such as zero-sugar sodas have become increasingly popular. The company will continue to look for ways to get people to buy products, with or without weight loss drugs.

PepsiCo's dividend yield has never been this high. It's currently 4.25%. That's a solid floor for investors, who only need 5% to 6% long-term earnings growth to produce double-digit annualized total returns. The uncertainty has affected the stock, though. Shares are down to a P/E ratio of 19, notably below their 10-year average of 26. Investors should do fairly well at a minimum from here, if PepsiCo can simply muster respectable growth moving forward.

Should you invest $1,000 in Target right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.