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After a series of disappointing results, retailers are now aiming for a more discretionary approach to spending recovery.
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Pfizer seems to be on the verge of moving past its post-pandemic struggles.
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While PepsiCo has shown long-term weaknesses, its outlook appears to be more positive than its recent past.
As discussions about tariffs continue between China and the US, there’s a slim hope on the macroeconomic front. Yet, with uncertainties still looming, it’s wise for investors to remain cautious, favoring lower-risk growth stocks and dividend payers that can provide steady cash flows regardless of the economic climate.
In that context, let’s take a look at three solid S&P 500 dividend stocks that have been unfairly impacted, making their dividends an appealing potential for profit.
No doubt about it, Walmart’s stock has outperformed Target’s (NYSE: TGT) since the pandemic’s effects began to settle in 2021. Walmart reached a record high in February, while Target’s shares are nearing a five-year low. This divergence in stock performance reflects varying outcomes for the two retailers, as Target’s more upscale “cheap chic” positioning hasn’t resonated well with consumers seeking affordable options during this inflationary period.
But, nothing is set in stone. If we move beyond the current uncertainty—perhaps when signs of a recession fade—we may see economic growth that boosts demand for Target’s discretionary offerings.
In fact, some signs of recovery are emerging. Despite the challenges, Target exceeded revenue expectations in the quarter ending early February, with same-store sales rising by 1.5%. It’s not monumental, but after a few years of disappointing performance, it indicates a respectable start. Analysts don’t predict explosive growth this year, but they’re optimistic for nearly 3% growth next year, which would be a significant improvement for this troubled retailer.
This doesn’t imply a clear path forward, of course. While there’s a glimmer of hope for consumer spending to increase—potentially spurred by lower interest rates—the US economy remains in a precarious position.
Target’s stock is currently trading at a price-to-revenue ratio down over 60% from its 2021 peaks, landing below 12. Thus, the risks are low for newcomers, especially with forward-looking yields just above 4.6%.
Meanwhile, the pharmaceutical sector has faced tough times, notably for Pfizer (NYSE: PFE), where stock prices have plummeted 64% since their pandemic peak in late 2021, unable to offset a 40% decline in total sales.
However, this stagnant phase may be coming to an end, paving the way for new growth.
Central to Pfizer’s potential rebound is its developmental pipeline. Although the company disappointed investors with the decision to halt development on weight loss drugs intended to compete with Wegovy and Ozempic, it still has 108 candidates, with 30 in late-stage trials potentially ready for FDA approval soon. Notably, oncology drugs are highlighted by the 2023 acquisition of Seagen, as effective cancer treatments have an undoubtedly strong market.
Pfizer hasn’t been idle amid these challenges. Though there were financial missteps during the pandemic, the company plans to trim $1.7 billion in spending, aiming for a total of $7.7 billion reduction by 2027, positioning itself for a $17.6 billion claim on $6.677 billion in revenues.
Growth pathways are essential. While Pfizer’s pipeline holds promise, even successful approvals won’t quickly translate into substantial sales over the next few years. As CEO Albert Bourla noted during the latest earnings call, “We know that over the next three years we won’t be a strong top-line growth story.”
Nonetheless, it’s crucial to consider the bigger picture. The company’s dividends remain largely secure, and it’s evident Pfizer is steering its business in a favorable direction. Tariff issues don’t pose significant hurdles for this firm, which should facilitate a speedy recovery in stock momentum.
Lastly, PepsiCo (NASDAQ: PEP) also remains an intriguing dividend stock in the S&P 500, though it stands at a bargain.
Oddly enough, while these companies usually exhibit similar stock movement, PepsiCo and its bigger rival, Coca-Cola, have diverged. Since 2022, Coke’s stock has soared to record levels while PepsiCo has seen a decline of 64% from its late 2021 peak.
What’s behind this? While last month’s profit guidance was adjusted, the trend of caution had been evident for a while.
PepsiCo lacks the scale, operational flexibility, and specific focus that Coca-Cola enjoys. With snack brands like Frito-Lay and Quaker Oats under its umbrella, PepsiCo faced challenges. In fact, Frito-Lay’s revenues dropped last year, and increased prices ultimately led to a 2.5% decrease in total sales, with Quaker Oats revenues plummeting 14%.
Yet, markets can change, and seasoned investors know that past performance isn’t a reliable indicator of what’s to come. Analysts anticipate a dip in earnings per share from $8.16 to $7.97 for the current year, but they’re expecting a significant recovery on both top-line and bottom-line fronts by 2027.
If you’re looking at potential investments, keep in mind PepsiCo’s forward dividend yield is a healthy 4.3%, and it’s raised dividends for an impressive 53 straight years—a streak that’s unlikely to end anytime soon.
So, as you consider Target, think about the options out there.
