Two brand-name, time-tested companies — sporting an average yield of 7% — are ripe for the picking amid a historic bout of volatility on Wall Street.
Though the stock market is a bona fide wealth creator for those who exercise patience and perspective, it’s not an investment vehicle that gets from Point A to B in a straight line.
Over the last two months, Wall Street has bluntly reminded investors that stocks can also move down. The Dow Jones Industrial Average and S&P 500 (^GSPC 2.51%) have dipped into correction territory, while the growth-propelled Nasdaq Composite has officially fallen into a bear market.
But what’s made this move so eye-popping is the volatility over the last three weeks. We’ve witnessed the S&P 500’s 12th biggest four-day decline in history (April 3 through April 8), as well as its fifth largest two-day drop (April 3 through April 4). While it’s not uncommon for investors to be unsettled by outsized percentage moves lower in Wall Street’s benchmark index, what’s important is recognizing opportunity when it’s staring you square in the face.
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Dividend stocks are often unstoppable over the long run
Historically, the S&P 500’s darkest days have offered its brightest investment opportunities. Among the many ways investors can take advantage of the S&P 500 sell-off is by purchasing dividend stocks.
Even though no two dividend stocks are alike, most share a few traits. They’re typically:
- Profitable on a recurring basis.
- Time-tested in the sense that they’ve navigated their way through one or more recessions.
- Capable of providing transparent long-term growth outlooks.
But the best aspect of dividend stocks is their ability to outperform over long periods.
In The Power of Dividends: Past, Present, and Future, the analysts at Hartford Funds, in collaboration with Ned Davis Research, compared the performance of income stocks to non-payers over a 51-year period (1973-2024). What they found was a clear outperformance by dividend stocks: 9.2% versus 4.31% for non-payers, on an annualized basis.
The S&P 500 is packed with hundreds of time-tested, dividend-paying companies. But fewer than 20 of these businesses offer an ultra-high-yield (one that’s four or more times greater than the yield of the S&P 500, which is currently 1.47%). Two of these ultra-high-yield stocks — sporting an average yield of 7% — make for no-brainer buys amid the S&P 500 sell-off.
Ford Motor Company: 6.23% yield (doesn’t include recent special dividend)
The first S&P 500 component that can be bought with confidence by long-term investors amid a historic bout of stock market volatility is domestic auto giant Ford Motor Company (F 2.06%). Based on its ongoing payout, Ford is yielding north of 6.2%. However, its trailing-12-month yield is approaching 8%, including a recent special dividend payment of $0.15 per share.
There’s no denying that Ford is working through some very tangible short-term headwinds. There’s uncertainty about how President Donald Trump’s tariff policy will affect auto industry demand and margins. Additionally, Ford has been contending with higher than anticipated warranty costs, which have dragged on its bottom line. But the silver lining is that its headwinds are primarily short-term in nature.
As an example, even though Ford’s warranty expenses have been a nuisance, many of these warranty issues occurred under the leadership of prior CEO Jim Hackett. Since Jim Farley took over as CEO in October 2020, there have been demonstrable improvements in the quality of the vehicles Ford is producing. J.D. Power’s 2024 U.S. Initial Quality Study, published last June, ranked Ford 9th best out of 34 brands, in terms of problems per 100 vehicles. This is a good indicator that Ford’s warranty-related costs are near an end.
Pardon the cliché, but Ford’s truck division continues to drive over its competition. The F-Series has been the best-selling truck in America for 48 straight years, and the top-selling vehicle, period, for 43 consecutive years. Trucks and SUVs often produce considerably better vehicle margins than sedans for automakers. Thus, the ongoing success of the F-Series is excellent news for Ford.
Furthermore, Ford’s management is closely monitoring spending. Despite initially committing to $50 billion in electric vehicle (EV) investments through 2026, the company has since pared back its spending to better align with demand and the lack of infrastructure needed to support widespread EV adoption. Having the ability to remain nimble with its capital expenditures will be a long-term positive for Ford’s profitability.
At roughly 7 times Wall Street’s consensus earnings per share (EPS) for the company in 2026, Ford has the look of a long-term bargain.
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Pfizer: 7.77% yield
A second ultra-high-yield dividend stock that makes for a no-brainer buy amid the recent tumult in the S&P 500 is pharmaceutical titan Pfizer (PFE 2.20%). Pfizer’s yield is nearing 8% and appears to be sustainable for years to come.
While tariffs are a potential worry for drugmakers, Pfizer’s biggest headwind has been its own recent success. The company’s COVID-19 vaccine (Comirnaty) and oral therapy (Paxlovid) raked in more than $56 billion in combined sales in 2022. Last year, combined sales fell to “only” $11 billion.
But perspective is important when examining the entirety of Pfizer’s drug portfolio. This is a company that wasn’t generating any COVID-19 therapy sales four years ago and brought in $11 billion in COVID-19-related revenue last year. Its non-COVID-19 drug sales have, collectively, been growing, too. Over the last four years, Pfizer’s net sales are up 52%, which is pretty impressive for a mature pharmaceutical company.
This is also a pivotal year following its December 2023 acquisition of cancer-drug developer Seagen. The $43 billion deal to buy Seagen resulted in one-time expenses that weighed down Pfizer’s bottom line last year. With these costs now out of the way, investors will be able to focus on the benefits of adding Seagen’s pipeline Pfizer’s already impressive oncology product portfolio.
Investing in defensive sectors and industries has its advantages, as well. No matter how well or poorly the U.S. economy and stock market are performing, people will still become ill and require prescription medicine. This means demand for Pfizer’s high-margin novel therapies tends to be highly predictable in any economic and stock market climate.
Lastly, Pfizer’s valuation is compelling. A forward price-to-earnings (P/E) ratio of just over 7 is historically inexpensive for a time-tested drug developer with a diversified product portfolio.