Two Outstanding S&P 500 Dividend Shares Dropping 9% and 21% for Long-term Purchase and Retention
Many financiers are always on the lookout for the next big earner. While this strategy can be profitable, it also frequently involves a great deal of risk, locking up funds that could be employed elsewhere and even leading to losses. High-risk investments aren't the only option, though. Intelligent investors, like Warren Buffett, seek out stable stocks that can generate substantial returns for shareholders over an extended period.
Dividend shares in the S&P 500 can be a great means of implementing this approach. Over time, investors can convert pennies into dollars, which can accumulate into larger sums. Here are two exceptional S&P 500 dividend shares that have experienced a decrease lately and may be worth purchasing and holding indefinitely.
1. Verizon -- 6.6% dividend yield
Shares of Verizon Communications (VZ 0.47%) have dropped around 9% since hitting their peak in early October and have underperformed the broader market this year. The decrease followed the company's reporting of its third-quarter financials. Earnings surpassed expectations marginally, while revenue was disappointing due to fewer wireless device sales.
Investors may have apprehensions about Verizon's debt, which surpassed $128 billion during the third quarter, although that's lower than it was at the end of 2023. This gives Verizon a debt-to-equity ratio of approximately 1.32. Investors would prefer to see this ratio lower, but it's not overly worrying to other highly leveraged companies.
An essential part of Verizon's strategy is to increase its market share in the fiber-optic internet sector, which is considered faster and more dependable than cable internet. Although the company still has work to do, it recently acquired Frontier Communications for $20 billion in cash. The transaction will enlarge Verizon's fiber-optic scale by adding 2.2 million fiber-optic subscribers and bringing its overall network to 25 million.
The strategy may take some time to materialize, and Verizon is compensating investors with a very generous 6.5% dividend yield. This dividend appears sustainable, given that Verizon has raised its dividend for 18 consecutive years. The company's quarterly payout ratio, which considers how much of the dividend is covered by earnings, can vary but typically comes in at less than 60%, so this is a relatively safe dividend share that investors may hold indefinitely.
2. Ford -- 5.2% dividend yield
Ford's (F) share price has plummeted nearly 22% from its highs in mid-July of this year, and earnings were behind the fall. Ford's earnings fell short of what analysts had anticipated due to vehicle recalls and warranty costs, which eroded earnings. Ford's electric vehicle business also continues to incur losses.
Things improved for Ford in the third quarter after the automaker managed to slip past expectations and projected earnings before interest and taxes to be at the lower end of its previous guidance, which exceeded some analysts' expectations. Some had feared that Ford might have to lower its guidance. The company also reduced its warranty costs and took a smaller loss in its EV division than it did the previous year. These developments represented an improvement, but they did not necessarily impress the market.
President-Elect Donald Trump's policies may benefit Ford. Trump has vowed to eliminate EV tax credits, reduce corporate taxes, and impose tariffs, all of which should advantage domestic manufacturers. Ford is trying to build its EV business, but its traditional car business remains the core of the company at present.
The stock currently offers an attractive 5.4% dividend yield. The payout ratio was elevated in the third quarter, but the company typically aims for a sustainable payout ratio of 40% to 50%. The business has challenges ahead, but the company has been a staple of the American economy for decades, and I anticipate it to continue doing so for many decades more while continuing to pay a healthy dividend.
Investing in Verizon's dividend shares could be a wise choice, given its 6.6% yield and potential growth in the fiber-optic sector. Despite its high debt-to-equity ratio, its consistent dividend increases and relatively safe payout ratio make it a potential long-term holding for finance-minded individuals.
Ford's stock drop and the challenges in its electric vehicle business may be concerning, but its stable dividend yield and potential benefits from President-Elect Trump's policies make it a potential investment for those seeking income from their money. With a sustainable payout ratio and a long-standing position in the American economy, Ford could continue to pay dividends for many years to come.
