3 Magnificent S&P 500 Dividend Stocks Down as Much as 23% to Buy and Hold Forever

Forget March coming in like a lion -- this month has come in more like a bear. While the S&P 500 had climbed about 1.2% through the first two months of 2025, the index has been heading south since peaking on Feb. 19.

For patient investors willing and able to ride out some near-term volatility -- and who want to collect some passive income while doing so -- now is a great time to act. As energy prices have dipped over the past year (West Texas Intermediate crude oil is down 14.3%), investors should head for the oil patch.

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Here they can pick up shares of Occidental Petroleum (NYSE: OXY), ConocoPhillips (NYSE: COP), with their forward dividend yields of 2.1% and 3.5%, respectively, along with Devon Energy (NYSE: DVN) and its 2.8% forward dividend yield.

1. Occidental Petroleum (down 22.7%)

Those familiar with the Berkshire Hathaway portfolio will likely recognize Occidental Petroleum. The conglomerate first purchased shares of the integrated energy company in 2019, and today, it's the sixth-largest position in the Berkshire Hathaway portfolio. Since Warren Buffett, an ardent believer in long-term investing horizons, has given the green light to Occidental Petroleum, it's certainly worth Main Street investors' time to drill down into and understand.

The stock's recent decline belies the company's strong performance in 2024. Occidental Petroleum set a company record for its annual U.S. oil production thanks to strong performances from assets in the Delaware, DJ, Midland, and Powder River basins. And with its acquisition of CrownRock complete, it has an even more formidable presence in the Midland Basin. It also strengthened its balance sheet by repaying $4.5 billion in near-term debt -- seven months ahead of schedule, no less.

With a stronger financial position and a more robust portfolio, Occidental Petroleum should successfully weather this downturn in energy prices.

2. ConocoPhillips (down 19.2%)

Oil supermajor ConocoPhillips warrants attention as a high-yield stock. Couple that with the stock's attractive price tag -- shares are valued at 5.2 times operating cash flow, a discount to their five-year average cash flow multiple of 6.2 -- and it becomes even more enticing.

ConocoPhillips has fortified its portfolio with the $22.5 billion acquisition of Marathon Oil it completed in November. Among the benefits it gained from that deal were the addition of more than 2 billion barrels of low-cost resources and more than $1 billion in synergies that it will recognize in 2025.

Another auspicious development for the company in 2024 was that it grew its reserves. Between exploration activities, the Marathon Oil acquisition, and other factors, ConocoPhillips ended 2024 with reserves of 7.8 billion barrels of oil equivalent (BOE) compared to 6.8 billion BOE at the end of 2023.

COP Free Cash Flow Per Share (Annual) data by YCharts.

ConocoPhillips frequently generates free cash flow per share that exceeds the amount it distributes in dividends, showing how management is unwilling to jeopardize the company's financial health to appease shareholders. In fact, on the company's fourth-quarter 2024 conference call, management reaffirmed its conservative approach to rewarding shareholders by noting that it was only committed to returning at least 30% of operating cash flow to investors -- though in 2024, it returned 45%.

3. Devon Energy (down 23.2%)

Don't let Devon Energy's poor stock performance fool you. While its shares have plunged over the past year, the upstream company has had much to celebrate. One notable feat was that it increased its oil production to an impressive new high water mark.

Devon reported a record of 398,000 barrels per day in the fourth quarter, thanks in part to its acquisition of Grayson Mill. This, in addition to its strong natural gas production, contributed to the company extracting a record 737,000 BOE daily in 2024. And the strong performance is expected to continue. Management projects production of 805,000 BOE to 825,000 BOE in 2025.

Generating strong free cash flow -- $3 billion in 2024 -- Devon Energy had ample resources to both strengthen its financial position and reward shareholders. The company returned $2 billion to shareholders and repaid $472 million in debt.

Devon has based its dividend payments on a fixed amount plus a variable amount (which is based on the company's financial performance); however, management has prioritized share buybacks instead of a substantial variable dividend recently. Nonetheless, management specified on the Q3 2024 conference call:

The variable dividend will remain a tool within our cash return framework, but in the near term, we expect to deliver cash returns to shareholders through our fixed dividend and share repurchase program.

In the coming years, management plans more of the same. After allocating 30% of free cash flow toward strengthening the balance sheet, Devon Energy plans to return up to 70% of free cash flow to shareholders.

Now's the time to gas up on these energy stocks

The price of oil has fallen during the past year, which dragged energy stocks lower, but savvy investors know that energy prices are cyclical. As such, when energy prices sink, it can often create great opportunities to pick up leading energy stocks at discounted prices.

For conservative investors who are interested in S&P 500 energy stocks that have fallen out of favor, Occidental Petroleum and ConocoPhillips would be smart candidates to consider, while those looking for growth potential will want to fuel up their portfolios with shares of Devon Energy.

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Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.