1 Magnificent S&P 500 Dividend Stock Down 52% to Buy and Hold Forever

It can be tough to get excited about buying a stock while it's down. It just feels wrong. There's obviously a reason other investors don't want it, even if that reason isn't obvious. And yet, veteran long-term investors know the best time to step into quality names is after a pullback. That quality will eventually be reflected in the stock's price.

Income investors looking for a bargain-priced dividend payer right now might want to add Constellation Brands (NYSE: STZ) to their watch list, if not their portfolio. It's now down more than 50% from its early 2024 peak. The sell-off has likely run its full course, however, and is finally ready to reverse.

What (and where) is Constellation Brands?

You may be more familiar with Constellation than you think. This is the parent company to Modelo and Corona beer, Kim Crawford and Ruffino wine, and Mi Campo and Casa Noble tequila just to name a few. The organization did $10.2 billion worth of business last fiscal year, up slightly from the prior year's top line.

Much has changed in the meantime, however. Namely, now fully removed from the misery of the COVID-19 pandemic and well into an environment of inflation-riddled economic malaise -- not to mention interest in a healthier lifestyle -- consumers are drinking less liquor, wine, and beer. Indeed, a recent Gallup poll indicates a record low of 54% of Americans now regularly drink alcoholic beverages, down from figures consistently above 60% since the late 1990s.

End result? Constellation's revenue is down 7% through the first half of the current fiscal year, dragging profits down by a similar degree. That's the core reason for the stock's sell-off, of course -- investors are panicking over the kind of results they're not accustomed to seeing from the company.

As the old adage goes though, nothing lasts forever. The sellers also arguably overshot their target. The combination of these two factors makes Constellation Brands a very compelling pick right now, particularly while you can plug into its forward-looking dividend yield of 3.1%.

The bullish bigger picture is only seen when you take a step back

The market's current disinterest in Constellation Brands right now is understandable. Sales are down, and expected to remain disappointing through the latter half of the current year. Next year isn't looking a whole lot better, either.

True long-term investors, however, aren't necessarily interested in these relatively short time frames. They're looking at the much bigger longer-term picture, weighing the strength of a company's products, and judging the underlying company's ability to market them (and adapt as needed). Would-be shareholders are also thinking about the durability of a particular industry, or in this case, an industry's capacity to recover.

When framed in these terms, Constellation actually still looks pretty promising. Take, for example, the company's plans to make itself more relevant in the new cost-minded paradigm. Rather than continuing to devote time and resources addressing cash-strapped middle-income consumers, earlier this year Constellation decided to divest its value-priced wine brands so it could focus on higher-margin premium labels.

Image source: Getty Images.

And that's just wine. As CEO Bill Newlands commented of the sale, "This transaction reflects our multi-year strategy to reconfigure our business, resulting in a portfolio of higher-end wine and craft spirits brands that are aligned to evolving consumer preferences and help bolster our competitive position."

The strategy is the right one to embrace here, too, even if it results in near-term tepidness. While overall sales of alcohol are slipping here and abroad, at least in Constellation's core North American market, sales of premium and so-called super-premium beer, spirits, and wine are still slogging out measurable growth. Consumers may be drinking less, but they're drinking better when they do.

That's why the company itself expects per-share earnings growth in the mid single digits to low double digits next fiscal year to be followed by growth in the low single digits to mid single digits the year after that, once a handful of growth and cost-cutting initiatives are fully implemented.

Then there's the more philosophical reason to take a shot on Constellation Brands' stock while it's down. This is faith that all consumers' discretionary habits are cyclical. Demand for alcohol will eventually begin growing again, perhaps driven by strong economic growth that's sure to materialize sooner or later. It's not clear when it will happen. You just want to be positioned in quality companies whenever it does. Constellation offers this quality.

More than enough reason to dive in now

None of this is to suggest the stock is guaranteed to be on the cusp of an immediate, thrilling recovery. It could move even lower, or take years to really make meaningful forward progress. That's the time frame interested investors should be focused on here anyway -- not the recent revenue weakness that's at least partially rooted in the company's self-initiated overhaul.

Whatever the case, most of any near-term or long-term downside is arguably already wrung out, while any lingering risk is made easier to digest by its solid dividend yield of 3.1% that's only expected to cost the company on the order of 30% of its profits. That leaves plenty of wiggle room to continue paying it while also leaving the company with the cash it needs to invest in its own growth.

This might help: Although he's said little about it, Warren Buffett's Berkshire Hathaway established a position in this company late last year, and has added quite a bit to the holding in the meantime. It's not a huge stake (for Berkshire anyway) --only 13.4 million shares worth a little less than $2 billion. When the world's most famous stock picker buys anything, though, it's not a bad idea to at least consider following that lead and doing the same for yourself.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.