There are a few things that United Parcel Service (UPS -0.06%), Walt Disney (DIS 1.11%), and Ford Motor Company (F 1.63%) have in common. They are Wall Street juggernauts, components of the S&P 500. The stocks all pay a dividend; two of the three currently top a 5% yield.
They’re also out of favor. UPS, Disney, and Ford are trading 22%, 28%, and 29% below their 52-week highs. Stretch out the timeline, and the three stocks are trading 45% to 60% below their all-time highs set in either 2021 or 2022. This isn’t a problem. It’s an opportunity. Let’s dive into why these are three great dividend-paying S&P 500 stocks that you can hold for the long haul.
1. United Parcel Service
Brown has been more black and blue lately. The provider of parcel delivery and supply chain solutions saw its revenue slide 9% to $91 billion last year. Profitability took an even bigger hit.
The near-term challenges are real. Striking a five-year deal with the UPS Teamsters union last summer locks its workforce in place through mid-2028, but it comes at the expense of a margin-gnawing spike in labor costs over the past year. The increases will continue through the next four years, but it will be more manageable.
It’s no fun when an income statement is burning at both ends, and this could be particularly problematic for income investors. UPS has increased its quarterly distributions for 15 consecutive years. The rising payouts and shrinking share price find the shares yielding 5% right now. Is this sustainable if business continues to contract as expenses keep expanding?
This doesn’t have to be an accordion of cacophony. UPS rolled out layoffs earlier this week after a much larger sea of pink slips earlier this year. Analysts see a return to revenue growth in the second half of this year, followed by a bottom-line recovery in 2025. If they’re right, UPS will have wiggle room to keep its streak of dividend hikes coming. You can also pick up UPS at a reasonable 14 times next year’s projected earnings.
2. Disney
Another household name with an attractively depressed share price is Disney. The media stock is moving lower for the sixth consecutive month. You can buy Disney for less than 19 times forward earnings.
There are a lot of things going well for the company, despite its stock chart going the other way. Disney returned to box office dominance this summer with the world’s two highest-grossing films of 2024, and it has two movies coming out over the holidays that should fare even better. Disney+ is finally profitable. There are some near-term hiccups at its theme parks and a more long-lasting problem with its legacy media networks, but the sum of all of these mouse parts points to healthy growth in the near future.
Disney’s current yield of 1% is much lower than the other names on this list, but the entertainment bellwether did boost its semiannual distributions by 50% earlier this year. The bullish play here will still be in the form of capital appreciation over dividend checks.
3. Ford
The highest yield and lowest earnings multiple on the list belongs to Ford, but let’s start with a brake check. Growth has slowed to single-digit upticks at the automaker for three consecutive quarters. Trading at a P/E ratio of 11 sounds great until you realize that it’s based on its market cap of $42 billion. Ford’s enterprise value is $168 billion once you consider its debt.
The car market is cyclical, and Ford is struggling to get the balance right between its electric vehicles and its more traditional rides. The current 5.7% yield will reward patient investors, but the hefty disbursements are at the mercy of Ford stepping on the accelerator again and controlling costs. Analysts see flat revenue and earnings growth for Ford next year, and we know how drivers feel about flats. The bullish catalyst here is that falling interest rates could spur fresh interest in big-ticket purchases. Aren’t you due for a new car? Ford hopes that you turn to the iconic car manufacturer.
Rick Munarriz has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
