2 Brilliant Dividend Stocks Down 20% to Buy Before They Rebound

In today's uncertain market, stocks with cash payouts have not been immune to challenges. Although such stocks tend to produce significant free cash flows, rising costs and comparatively high interest rates have often weighed on such stocks, often taking them down by over 20%.

The silver lining in this situation is that lower prices tend to bring higher dividend yields. Knowing that, these dividend stocks could be particularly intriguing buys under current conditions.

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1. Royal Caribbean

Admittedly, Royal Caribbean (NYSE: RCL) may look like the last dividend stock investors might want to buy in today's market. The company still has a massive debt overhang from the COVID-19 pandemic, which forced it to shut down for more than a year in the early part of the decade.

More recently, higher fuel prices are almost certain to weigh on profits. That challenge likely explains why the stock is off by 22% from its 52-week high.

Nevertheless, economic uncertainty did not stop bookings from exceeding the levels at this time last year. Moreover, those strong bookings could make it easier to impose a fuel surcharge, though the company has so far declined to do so.

Additionally, increased bookings in 2024 helped it bring back the dividend it suspended in early 2020. The company has periodically hiked the payout since then. At $6 per share annually, it pays more than it did before the pandemic and had raised the payout by 50% in February. With that increase, the 2.1% dividend increase is more than double the 1.1% average for the S&P 500.

Also, it can likely afford this dividend. In the trailing 12 months, it generated more than $1.4 billion in free cash flow. During that quarter, the $946 million dividend costs were well below free cash flow, meaning the payout is likely sustainable.

Finally, its P/E ratio is 17, a level near multi-year lows. Between the seemingly unstoppable popularity of cruising, that low valuation, and of course, its dividend, Royal Caribbean looks like a stock to double up on right now, even in today's challenging business environment.

2. Tractor Supply

Tractor Supply (NASDAQ: TSCO) is the largest rural lifestyle retailer in the U.S., with over 2,400 locations in rural and semi-rural areas across 49 states.

The stock had trended higher for most of the decade. However, it began dropping last summer before cratering after the most recent earnings report.

In the first quarter of 2026, the company's Q1 results for net sales and earnings lagged behind analyst estimates. This was particularly true with the performance of its companion animal segment, which sells pet supplies.

Even though its four other business segments performed well, investors soured as new store openings and rising prices led to a 12% increase in inventories. As a result, the stock is off nearly 50% from its 52-week high.

Still, as previously mentioned, lower stock prices boost dividend yields. To that end, its annual dividend of $0.96 per share yields 2.9%.

That payout has also risen for 17 straight years, reducing the likelihood it will risk alienating investors by pausing or reversing the payout hikes. For now, the $492 million cost of the dividend over the trailing 12 months was below the $552 million in free cash flow it generated during the same period, indicating its payout is sustainable.

Additionally, the stock looks like a bargain. It sells at a 16 P/E ratio, far below its 25 average over the last five years.

Ultimately, Tractor Supply's consumables for pets and farm animals should keep its customers coming back. When also factoring in the discounted stock price, low P/E ratio, and rising dividend yield, now may be an excellent opportunity to profit from Tractor Supply's payout and what will likely be an eventual recovery in the stock price.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tractor Supply. The Motley Fool has a disclosure policy.