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

Key Points

• Target is going through its third year of declining sales, but it just hiked its dividend last month.

• Comcast is using its moneymakers to grow on a per-share basis, even as its legacy businesses are struggling.

• The two stocks are trading for less than 12 times trailing earnings with dividend yields north of 3%.

• 10 stocks we like better than Target ›

The market is rallying this summer, but not every stock is hitting new highs. Shares of Target (NYSE: TGT) and Comcast (NASDAQ: CMCSA) are trading more than 20% below their 52-week highs.

These are quality stocks and names you know. They are components of the S&P 500 (SNPINDEX: ^GSPC). They are each yielding better than 3%, rewarding patient investors. I think it's a good time to look their way while the rest of the investor community is chasing other stocks.

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1. Target

The cheap chic retailer is getting more cheap, admittedly as it is growing less chic. Target's bull's-eye logo isn't just iconic. These days it's also where bears and worrywarts are aiming. The stock is trading 36% below its 52-week high, down almost 60% from the all-time peak it scored four years ago.

Target isn't at its best right now. Net sales growth has been negative in each of the last two fiscal years, and analysts are bracing for that unfortunate streak to stretch to three years. Store comps declined 3.8% in its latest quarter, and that masks the even more problematic 5.7% slide for in-store comps. Its mass market rivals are faring better, so why is Target losing market share?

Great retailers buckle, sometimes permanently. It doesn't help that over the past few years, Target somehow managed to ruffle the feathers of both political extremes. However, I see the current lull as an opportunity. The bull's-eye isn't a place to aim. It's a place to land.

Image source: Getty Images.

Target is doing fine on the profitability front. Its guidance calls for the chain to earn between $7 and $9 per share for all of 2025, pricing the stock for a modest 13 times this year's earnings at the midpoint. It's returning more of that money to its shareholders. Last month it hiked its payout, something the out-of-favor retailer has done for 54 consecutive years. It's a Dividend King at a time when naysayers are staging a coup d'etat.

Target is good for the money. Between the rising dividend and sliding stock, Target's yield has increased from 3% to 4.3% over the past year. Its guidance translates into a forward payout ratio of 51% to 65% that makes the distributions sustainable in the near term. In a country of overextended securities after three months of rising stock charts, Target remains a rare bargain.

2. Comcast

There isn't a lot of love for Comcast these days, with its stock 22% below its 52-week high. Media companies in general have been market laggards in recent years, and Comcast has some legacy business in a seemingly perpetual state of decline. Cord-cutters have been whittling away at its cable TV customer base. Even its once-steady business of providing homes and businesses with broadband connectivity has started to slowly fade. This is problematic, because these two businesses combined for 64% of Comcast's revenue and 83% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last year.

The balance of the business is a little more exciting. It's a major content and experiences creator through its media, studios, and theme parks led by NBC Universal. It reaches over 100 million U.S. households, and it's still a global force outside of its 80% audience penetration on its home turf.

The unheralded allure of Comcast is that it's a money machine. Its backpedaling connectivity and platforms business has 52 million total customer relationships paying more than $100 more cable TV and/or internet access. Half of that trickles all the way down to adjusted EBITDA.

Comcast is putting that money to good use. It spent $8.6 billion on buybacks last year, reducing its outstanding share count by 5%. This helped translate a mere 2% overall increase in revenue last year into a 9% increase in adjusted earnings per share. Despite the pasture tipping of its cash cows, Comcast's cash flow -- on a per-share basis -- rose 3%. It's also naturally returning capital to its investors in the form of quarterly dividends. It's currently yielding a hearty 3.7%.

The sum of its parts is working. Outside of the pandemic-sandbagged 2020, Comcast has provided decades of consistent top-line growth. It's shaking the leaves of its slowly dying money trees to improve its per-share performance with enough left over to grow its content side. It even opened the country's first major theme park in more than two dozen years two months ago. Analysts see revenue turning negative in the second half of this year, but they see a recovery on both ends of the income statement in 2026. You can grab Comcast for less than 9 times trailing earnings, another bargain in a seemingly richly priced market.

Should you invest $1,000 in Target right now?

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Rick Munarriz has positions in Comcast and Target. The Motley Fool has positions in and recommends Target. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.