3 Beaten-Down Dividend Stocks to Buy on the Dip

The past few months have been stressful ones for investors with lots of dividend stocks in their portfolios. The Vanguard Dividend Appreciation ETF, which tracks the performance of companies that consistently raise their payouts, is down about 8% from a peak it set this summer.

Dividend stocks can fall for lots of reasons, but the main one lately has little to do with the day-to-day operations of most businesses affected. For the first time since the global financial crisis kicked off over 15 years ago, investors can receive a risk-free yield above 5% from long-term Treasury notes.

A general lack of demand for dividend payers plus issues of their own have pushed the prices of these stocks down to what looks like bargain prices. Here’s why you could regret not scooping up some shares on the dips.

Ally Financial
Shares of online bank Ally Financial (ALLY) are down about 24% from a peak they set this summer. At recently beaten-down prices, the stock offers a juicy 5.1% dividend yield.

Ally Financial spun out from under the wing of General Motors more than a decade ago but didn’t begin paying a dividend until 2016. Ally’s payout has grown 100% over the past five years, but investors should know that it hasn’t raised its payout since early 2022.

Earlier this month, the company announced a 5% workforce reduction even despite signs that its auto loan business is still going strong. The company recently reported a record-high number of new auto loan applications during the third quarter. Moreover, the average yield on recently originated loans works out to 10.7%.

The yields Ally receives from new loans are way up, but so are funding costs. The bank’s third-quarter net interest margin declined by more than half a percent year over year to land at 3.24%. Now that the Federal Reserve has stopped raising rates, Ally Financial’s net interest margin has a chance to rise again on the back of newly originated loans.

Thermo Fisher Scientific
Shares of Thermo Fisher Scientific (TMO) are down about 34% from the high-water mark they set at the beginning of 2022. The stock has been under pressure because revenue related to COVID-19 testing fell off a cliff this year. Now you can buy the stock at the unusually low price of just 28.3 times trailing-12-month earnings.

Thermo Fisher shares offer a minuscule 1.3% yield at recent prices. If the company can maintain its pace of dividend raises, though, this could become one of the strongest income-generating stocks in your portfolio. The company raised its payout by 106% over the past five years.

Regardless of the discipline being studied, you would be hard-pressed to find a lab that isn’t stocked with dozens of Thermo Fisher products. The profit margin on glass beakers isn’t great, but a diverse product portfolio keeps scientists all over the world familiar with the brand and its reputation for quality.

Over the past year, Thermo Fisher spent more than $1.4 billion on the research and development of next-generation equipment. Thermo Fisher’s ubiquitous presence in the scientific community makes marketing new products with cutting-edge technology and services that carry wider profit margins relatively easy.

Thermo Fisher recently reported third-quarter earnings that rose 13.7% year over year. With a huge product catalog that many members of the life science industry rely on, investors can reasonably look forward to strong earnings growth for many years to come.

Texas Instruments
Shares of analog chipmaker Texas Instruments (TXN) are down about 22% from a peak they set this summer. At recent prices, the stock offers a nice 3.6% yield and perhaps a whole lot more by the time you’re ready to retire. The company has raised its payout by about 69% over the past five years.

Texas Instruments stock recently hit a new 52-week low after the company issued softer-than-expected guidance for the fourth quarter. Business conditions are worsening for its industrial customers, and prolonged United Auto Workers strikes aren’t helping.

Analog chips are typically used to convert real-world signals, like the presence of obstacles near your vehicle, into data that computers can process. Once a Texas Instrument chip becomes part of a new product line, it tends to stay there for several years and sometimes over a decade.

After the banner year that was 2021, Texas Instruments stock is suffering at the bottom of the latest chip cycle. At its recently beaten-down price, you can buy the stock for about 21.5 times the amount of free cash flow the company reported back in 2021.

Texas Instruments’ stock price fluctuates in tune with the overall semiconductor cycle, but its cash flows are far more reliable than those at Intel or Nvidia. Buying the stock on the dips gives you a great chance to come out way ahead when you’re ready to retire.

— Cory Renauer

Source: The Motley Fool