There are a few things that Ford Motor Company(NYSE: F), Target(NYSE: TGT), and Pfizer(NYSE: PFE), have in common. They are all components of the prestigious S&P 500. The stocks all pay a dividend north of 4%, with two of them yielding a lot better than 5%. Finally, bucking the trend of the rallying market, they are all trading at least 30% below their 52-week highs.
There are worse fates than being a household name, declaring generous quarterly distributions, and being currently out of favor. Let's take a closer look at these three iconic dividend-paying S&P 500 stocks that you can buy at a discount, potentially holding on for the long haul.
1. Ford
It's been four years since I unloaded my second Ford Flex. The now-discontinued crossover SUV was the first ride I replaced with the same make and model. The shares have fallen out of favor, trading 31% below last summer's high. I guess you can say that investors also miss the Ford flex.
The legendary automaker is doing better than its stock chart, with Ford shedding more than a quarter of its value over the past three years. Revenue growth has been positive in the first four years coming out of the pandemic. The top line did go the other way in this week's quarterly update, but even then investors found blue skies in Blue Oval's fresh financials.
Image source: Getty Images.
Revenue declined 5% to $40.7 billion for the first three months of this year, but analysts were holding out for a 16% drop. Wall Street pros were modeling a profit of $0.02 a share, but Ford drove through that barrier wall to earn $0.14 a share for the first quarter. The bottom-line beats are accelerating, with Ford clocking in 3%, 20%, and now 557% ahead of market expectations in the last three quarters, respectively.
Ford did suspend its forward guidance given the trade war uncertainties, warning that it expects a full-year hit on its adjusted earnings before interest and taxes from tariffs to be around $2.5 billion. It's hoping to realize $1 billion in cost savings to partly offset that hit. Two days later it announced that it would be raising prices on three vehicles it makes in Mexico by as much as $2,000. However, there was some upbeat news later in the week when U.S. automakers became part of the framework of a potential trade deal with the United Kingdom.
The headlights are still bright for Ford and other automotive stocks despite the foggy windshield. The average age of passenger cars on the road is a record 14 years. The demand is there for a surge in auto sales. Consumers just need economic confidence and a climate of low financing rates to make the plunge. The stock's nearly 6% yield comes dangerously close to its projected free-cash-flow average in the next couple of years. If the economy softens or tariffs intensify the distributions won't be sustainable at the current level. However, don't underestimate the power of pent-up demand and the ability of the economy to course correct before hitting more potholes.
2. Target
The cheap chic discount retailer feels more cheap than chic these days. It's not resonating as the cool place for value-conscious shoppers, with sales declining in four of the past seven quarters. The top line has dipped slightly in back-to-back fiscal years. The stock also isn't resonating with investors, off a blistering 42% from its August peak.
The bullish news for investors is that the stock is well positioned for a possible economic brake tap. It offers non-discretionary grocery items, and has strong private-label sales elsewhere. Folks who shop at mainstream department stores may trade down to Target when money is tight. The 4.6% dividend -- near a historical high -- appears safe in the near term. The chain is trading for less than 11 times trailing and forward earnings, dropping to just 10 times next year's projected profit.
3. Pfizer
When a major pharmaceuticals company is packing a 7.6% yield it should be more of a red flag than an income party. It often means that many of its key products are coming off patent, rivals have better alternatives, or the pipeline is barely trickling for potential new treatments. There's a lot of that here. Analysts see revenue gradually sliding through at least the next five years with net income to follow suit after next year.
It doesn't have to go that way. Pfizer can strike gold with a new treatment, even though it did throw in the towel last month on a once promising oral weight loss drug candidate. Pfizer can also use its clout and leverage to acquire a smaller player with a brighter growth trajectory. Its streak of 16 consecutive years of hikes can be in jeopardy if its profits don't bounce back, but it's just the "P" in Pfizer that's silent. The drug giant itself still has a lot to say.
Should you invest $1,000 in Ford Motor Company right now?
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Rick Munarriz has positions in Pfizer and Target. The Motley Fool has positions in and recommends Pfizer and Target. The Motley Fool has a disclosure policy.
