3 Magnificent S&P 500 Dividend Stocks Down as Much as 50% to Buy and Hold Forever

Key Points

• Coca-Cola is down around 10% and has an attractive valuation.

• General Mills is down roughly 45% and has a lofty 4.9% yield.

• Hormel Foods is off by 50% and its yield is near the highest levels in the company's history.

• 10 stocks we like better than Coca-Cola ›

There's often a trade-off between risk and reward when you look at dividend stocks. A higher yield is often associated with more risk. That said, these three consumer staples companies, which are all off from their highs, each has something attractive to offer investors beyond just their yields.

Here's why beaten-down Coca-Cola (NYSE: KO), General Mills (NYSE: GIS), and Hormel Foods (NYSE: HRL) could be worth owning despite price declines of as much as 50%.

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1. Coca-Cola is reasonably priced

Coca-Cola is the least exciting stock on this list, with a price drop of only about 10% or so. And the dividend yield on offer is only around 3.1%. That's well above the 1.2% yield of the S&P 500 index (SNPINDEX: ^GSPC), but it isn't shockingly high by any stretch of the imagination.

Really, the pullback in Coca-Cola's price makes the beverage giant a solid option for mostly conservative income investors.

Coca-Cola has a lot of positives to offer. It is a Dividend King, it has an industry-leading brand portfolio, and it has the distribution, marketing, and R&D strength to compete with any of its consumer staples peers. In fact, it is one of the largest consumer staples companies on the planet.

But what is really important right now is that the stock pullback, although relatively modest, has pushed Coca-Cola's price-to-sales and price-to-earnings ratios below their five-year averages. In other words, the stock looks reasonably priced, if not a little cheap.

2. General Mills knows what needs to be done

General Mills is not a Dividend King, but its dividend has trended generally higher over time. General Mills is also a smaller company than Coca-Cola, but it is a very important partner to retailers thanks to its innovation and marketing chops. The stock's yield, meanwhile, is a bit more attractive at nearly 4.9%.

Sure, the stock has fallen a lot more, given that it is off its peak by nearly 45%, but there are reasons to be positive about the future.

General Mills is dealing with a shift toward more health-conscious food by consumers. It is open about the fact that it is in the middle of a transition year, in which it will have to spend more heavily than usual to get its business back in line with consumer trends. That is bad in the short term, but it is actually a quite normal business fluctuation for the food maker over the long term.

General Mills has adjusted before and will likely do the same this time around, too. If you can stomach a contrarian investment, the risk/reward profile here seems like it is tilted toward reward for investors who think in decades and not days.

3. Hormel Foods is a turnaround story

Shares of Hormel Foods are down around 50% from their recent highs. That has pushed the yield up to 4.7% or so, near the highest levels in the company's history.

Hormel is in the deep discount bin even though it is a Dividend King that has reliably increased its dividend annually for nearly six decades. There are problems to deal with, though, since the business isn't resonating well with consumers right now.

But you don't achieve Dividend King status without having a good business plan that gets executed well in hard times. Right now, Hormel is going back to basics.

The board of directors has rehired a former CEO to get operations back on track and to train a new CEO to take over the corner office in the future. This is the right move to make, but one that hints of a slow turnaround. The key is that the philanthropic organization The Hormel Foundation controls nearly 47% of Hormel company's stock.

The Hormel Foundation uses the dividends it collects from Hormel the company, so it wants a reliable and steadily growing dividend. Which means that dividend investors are aligned with Hormel the company's biggest insider. And also that Hormel the company can make decisions that are long term in nature without fearing what Wall Street thinks in the short term.

If you don't mind buying into a slow-moving turnaround, high-yield Hormel could be the right choice for you.

Each is exciting in their own way

The word magnificent is a big word that can be read in different ways. Coca-Cola is magnificent because it is a historically well-run business that is reasonably priced today. General Mills is magnificent because it has a high yield and a history of adjusting with consumer trends. Hormel is magnificent because the turnaround plan has a very strong backer in The Hormel Foundation. If you like high-yield stocks, one of these three S&P 500 index constituents will likely be of interest to you today.

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Reuben Gregg Brewer has positions in General Mills and Hormel Foods. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.