2 Magnificent S&P 500 Dividend Stocks Down 40% to 70% to Buy and Hold Forever

All investors love their dividends, but merely looking at a stock's dividend yield can be misleading. After all, a stock with a high yield could suggest that the dividend is about to be cut, that the business may be declining, or that there are other risks, such as high debt. But sometimes, big declines in dividend stocks can be massive income-producing opportunities if the business recovers and continues raising its payout over the long term.

The following beaten-down dividend stocks -- down 40% to 70% from their highs -- are suffering from the ripple effects of the pandemic and the rise in interest rates. However, inflationary headwinds could be ebbing. Meanwhile, each company recently brought a formerly successful CEO back out of retirement to help steer their turnarounds. Thus, both could be huge income opportunities.

At first glance, Dollar General (NYSE: DG) would seem like a resilient stock. The company is the largest U.S. retailer in terms of the number of outlets, with over 20,500 small-format stores selling low-priced essentials in small towns across America. That seems like a business that would be able to weather hard times.

However, the post-pandemic period has been challenging. After COVID-19-era stimulus checks ran out and inflation shot up, Dollar General's core consumers felt acute financial pressure. This led to a big increase in shoplifting, or "shrink," which has eaten into margins. Notably, 60% of Dollar General's sales come from households making under $30,000 per year, and 80% of its stores are in communities with 20,000 people or less.

As a result, revenue growth has slowed, and earnings have plunged from almost $11 at the height of the pandemic to just $6.07 over the past 12 months. Shares are more than 71% below their 2022 highs.

Still, that $6.07 covers the company's $2.36 dividend almost three times over, a yield of 3.15% at this stock price. Shares go for just 12.5 times earnings on what could be a cyclical, low earnings number.

With that low of a valuation, it wouldn't take much for the stock to work again. Meanwhile, things are starting to improve. Todd Vasos, who was CEO during Dollar General's rise from 2015 to 2022, returned as CEO in October 2023 to turn the company around. Although it's been slow going, same-store sales are now positive, up 1.3% in the most recent quarter (ended Nov. 1).

Vasos appears to be implementing a back-to-basics strategy, taking steps to limit shrink via training and other measures, and pursuing a modest store expansion strategy. Management projects 575 new store openings in 2025, which is a solid but small expansion on top of the company's 20,500-store base. Instead, Vasos is leaning on 2,000 full remodels of older stores and 2,250 incremental remodels of newer stores to elevate the customer experience.