3 Magnificent S&P 500 Dividend Stocks Down 20% to 63% to Buy and Hold Forever

Lots of investors enjoy keeping an eye on the market in general, and their portfolio in particular, standing ready to make a move whenever one is merited. Other people, however, have neither the time nor the inclination to monitor and manage their stocks. This crowd just wants to set it and forget it for years on end.

If you're part of this latter group, then there's good news: You have options. If you want to invest differently than your more active counterparts, plenty of tickers fit the bill.

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Here's a closer look at three discounted S&P 500 dividend stocks you can feel good about buying and holding forever.

1. PepsiCo

For most investors, Coca-Cola is a go-to choice for a consumer goods name, and understandably so. Not only is it the world's most prolific family of beverage brands, but its namesake cola is also woven into the fabric of culture.

Coca-Cola may not be the best beverage bet for long-term investors, though. That honor arguably belongs to PepsiCo (NASDAQ: PEP) for a couple of reasons.

First, PepsiCo offers the higher dividend yield of the two companies. Whereas Coke's forward-looking yield currently stands at 2.9%, newcomers to PepsiCo will be plugging their money into a higher forward-looking yield of 3.5%. And remember: While both stocks' yields will ebb and flow over time, the effective yield on your invested dollars is relative to the price you pay.

Sure, Coca-Cola has the better dividend pedigree with 63 consecutive years of annual increases. PepsiCo is no slouch, though, having upped its yearly payout in each of the past 53 years. And since 2004, its dividend payments have grown measurably faster than Coca-Cola's.

Second, while these two beverage giants are seemingly interchangeable on the surface, their businesses are actually quite different. PepsiCo -- which also owns snack foods brands like Fritos, Lay's potato chips, Doritos, and Cheetos -- makes the majority of its products in-house; most of Coca-Cola's production is outsourced to third-party bottlers.

Coke's model is more profitable, since bottling operations are often low-margin. PepsiCo's in-house approach gives it tighter control of the entirety of its business, though, meaning it's nimbler when it needs to be. This won't matter most of the time, but when it does, it really matters.

PepsiCo shares are currently down 20% from their 2023 high, which is inviting, to say the least.

2. Merck

It's been a tough past few months for shareholders in Merck (NYSE: MRK). The stock is down nearly 30% since last June for a range of reasons including slowing sales of Gardasil in China, fresh competitive pricing in the U.S., December's decision to end two oncology drug trials, and disappointing guidance for the current year.

Investors are even concerned because the patent protection for its cancer-fighting blockbuster drug Keytruda will begin expiring in 2028.

These are all credible concerns. For true "forever" investors, though, these worries just aren't a big deal. Merck stock is a compelling buy, in fact, now that its pullback has pumped up its forward-looking dividend yield to about 3.5%.

Yes, even though the company is taking measures to prolong the marketable life of Keytruda, there's no denying that the 45% of revenue this drug contributes is in jeopardy. That's just the nature of the business.

What may not be fully appreciated is that this pharmaceutical giant is very, very good at finding new profit centers to replace its aging ones. Keytruda, for instance, was added in 2006 when management acquired a company called Organon.

At that time, cholesterol-fighting Zocor was Merck's bestseller. Keytruda wouldn't even win its first approval until 2014, when Merck's Remicade (for autoimmune diseases) and diabetes treatment Januvia were making the most waves for the company.

So patent expirations are nothing new for Merck. Keytruda will be a tough drug to fully replace, but the company has several promising prospects in its pipeline, including pulmonary arterial hypertension therapy Winrevair and MK 4082, which is an orally administered anti-obesity candidate.

All told, CEO Robert Davis said during the company's fourth-quarter earnings call, there are 20 potential blockbuster drugs currently in the works with the collective potential to generate $50 billion worth of annual revenue. Even accounting for a bullish bias, that's a lot of ways for Merck to continue its long-lived legacy of replacing older products with newer, patent-protected ones.

3. AES

Lastly, add The AES Corporation (NYSE: AES) to your list of S&P 500 dividend stocks to buy while they're on sale.

It's not exactly a household name, although there's a chance your household regularly uses its services. AES is a utility company -- more specifically, it's an energy wholesaler, meaning it produces and sells electricity to consumer-facing utilities. This can be a more efficient means of meeting the world's growing power needs.

The marketable business model hasn't helped shareholders much lately. The stock is now down 63% from its late-2022 peak and knocking on the door of new multiyear lows mostly because the company is going through some major, expensive changes.

It's selling some assets while building new power-production facilities and taking on debt to make most of it happen. As of its most recent quarterly report, AES was servicing more than $30 billion worth of long-term liabilities with just $12.3 billion worth of annual revenue and less than $1 billion in annual net profits. Investors are understandably worried.

There's a method to the madness, though. While its messy as well as costly, AES is shifting its power production away from fossil fuels and toward renewables, which are the industry's inevitable future. The company expects more than half of its 63 gigawatts' worth of capacity additions slated for this year to be solar panel installations, while nearly another one-third of its infrastructure growth will be battery storage facilities.

Such green-energy construction isn't cheap, but it's not necessarily any more expensive than more traditional forms of power production these days. And while renewable mandates are still a bit fuzzy, they're coming. AES is ready for them.

The company is reshaping itself with the modern era in mind, by adding production capacity to meet the soaring demand for electricity with the advent of power-hungry data centers. By selling and delivering electricity directly to data centers, it is addressing the industry's current chief challenge.

Although management is in the midst of an expensive transition, it has affirmed an annual target range of 5% to 7% in sales growth through 2027, with per-share earnings projected to grow between 7% and 9% for that time frame. That's solid for any name in the utility industry. It's also likely a taste of what to expect in the long run.

You can plug into AES stock while its forward-looking yield stands at an impressive 6.4%.

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James Brumley has positions in Coca-Cola. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.