5 Dividend Darlings Near Their Yearly Lows

Did you know that some of the market’s most cherished dividend payers are trading close to their 52-week lows? It might seem counterintuitive, but top-tier stocks like Walgreens, Pfizer, and Starbucks are currently priced like rare bargains on the discount aisle. This juxtaposition raises a compelling question: Are these stocks hidden gems ripe for the picking or potential pitfalls to avoid?

In this deep dive, we’ll explore five prominent S&P 500 stocks that offer a dividend yield of over 2% and are nearing their 52-week lows. We'll peel back the layers of Walgreens, Pfizer, Starbucks, Hershey, and CVS to understand their business models, evaluate their economic moats, and assess their global influence and future growth prospects. Each company’s potential risks and opportunities will also be scrutinized to help you make informed investment decisions.

1. Walgreens Boots Alliance (WBA)

Walgreens Boots Alliance is a premier global pharmacy-led health and wellness enterprise with a significant presence in both retail and wholesale pharmacy across the US and Europe. The company's integrated healthcare model is geared towards delivering innovative solutions in pharmacy, retail, and preventive healthcare with a focus on customer health and convenience. Its operations are divided into three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale.

• Economic Moat: Walgreens maintains a robust economic moat characterized by its extensive network of pharmacy locations and established relationships within the healthcare industry, which provide competitive advantages in purchasing, distribution, and scale. As of 2024, Walgreens operates over 9,000 stores in the U.S. alone, serving approximately 8 million customers each day.

• Brand Power: Walgreens is a household name with a reputation for quality and reliability in pharmacy services, underpinned by its promise of trusted healthcare advice and a wide range of health and wellness products. The brand's strength is reflected in its ability to maintain high customer loyalty and repeat business.

• Global Reach: While Walgreens has a dominant presence in the U.S., it also has extensive operations in Europe, particularly in the UK and several other countries, with more than 4,400 stores internationally under the Boots banner, which further diversifies its market base and reduces geographical risks.

• Research and Development: The company invests in developing new healthcare models and pharmacy practices that enhance customer service and operational efficiency. This includes investments in digital health initiatives, such as mobile apps and online prescription management tools, which have significantly increased customer engagement levels.

• Strategic Partnerships and Endorsements: Walgreens has formed strategic alliances with a variety of healthcare providers and insurance companies to expand its reach in preventive and primary care services. Recent partnerships include collaborations with local health systems to provide primary care clinics within its stores, enhancing its role in community healthcare.

• Future Growth: Walgreens is aggressively expanding its digital and omnichannel offerings, recognizing the shift towards online retail and telehealth services. The company's forward-looking strategy involves transforming its stores into healthcare hubs that offer a range of services from diagnostic testing to chronic disease management.

• Potential Risks: The company faces significant competition from other large pharmacy chains and new online drugstores that could erode market share. Regulatory changes, particularly in healthcare reimbursement policies and drug pricing, pose financial risks. Additionally, the ongoing challenge of integrating and optimizing its vast array of services and geographic spread can affect operational efficiency.

2. Pfizer (PFE)

Pfizer is not just a pharmaceutical giant; it's a pioneer in the health care industry, dedicated to advancing wellness, prevention, treatments, and cures. Its business model leverages groundbreaking science to deliver innovative therapies and vaccines. The company's portfolio includes medicines, vaccines, and consumer healthcare products, making it a leader in a broad range of areas from oncology and cardiology to immunology and neurology.

• Economic Moat: Pfizer’s economic moat is fortified by a combination of extensive patents, its massive scale, and significant brand equity. These factors create high barriers to entry for competitors. The company’s ability to invest heavily in R&D further strengthens its position by continually expanding its pipeline of innovative drugs.

• Brand Power: Pfizer is a household name, synonymous with quality and reliability in pharmaceuticals. Its reputation was further enhanced by the swift development of the COVID-19 vaccine, Comirnaty, which played a pivotal role in addressing the global pandemic.

• Global Reach: With operations in over 125 countries, Pfizer’s global presence allows it to capitalize on markets with varying levels of maturity regarding pharmaceutical products, ensuring a broad and resilient revenue stream.

• Research and Development: In 2023 alone, Pfizer invested approximately $9.6 billion in R&D, one of the highest in the industry. This investment fuels innovation, with over 90 clinical programs currently in progress, including 27 projects in Phase 3 trials as of early 2024.

• Strategic Partnerships and Endorsements: Pfizer has numerous strategic alliances that amplify its market reach and enhance its operational capabilities. Notably, its collaboration with BioNTech on the COVID-19 vaccine has set a precedent for future partnerships in RNA technologies.

• Future Growth: Pfizer is aggressively pursuing growth in emerging markets, which are expected to contribute significantly to global pharmaceutical sales in the coming decades. Additionally, its expansion into gene therapy and AI-driven drug discovery presents new avenues for growth.

• Potential Risks: The company’s future faces potential risks from patent cliffs, as blockbuster drugs eventually lose patent protection, leading to revenue losses as generic versions enter the market. Regulatory challenges and pricing pressures in key markets also pose significant risks.

3. Starbucks (SBUX)

Starbucks, the world's premier coffee company, revolutionized the coffee shop concept by turning select coffeehouses into a destination of relaxation and connection, providing a unique experience that blends rich, globally sourced coffee with a community feel across its worldwide locations. Operating with a direct sales business model, Starbucks not only sells coffee but also a variety of other beverages, fresh food items, and merchandise through company-operated stores and licensed outlets. The company also extends its brand through packaged goods sold in grocery stores.

• Economic Moat: Starbucks' moat is reinforced by its strong brand recognition, which is synonymous with specialty coffee worldwide. This brand strength supports premium pricing power and customer retention. Additionally, its widespread global network of over 33,000 stores in 80 markets creates significant barriers to entry due to scale and market penetration.

• Brand Power: As a testament to its branding success, Starbucks consistently ranks among the most recognized and admired global brands. In 2023, Brand Finance placed Starbucks at 52nd in its Global 500 list, citing its brand value growth as pivotal during recovery post-pandemic.

• Global Reach: Beyond the U.S., Starbucks sees significant revenue from international markets such as China, Canada, Japan, and South Korea. The company’s international operations contributed approximately 31% to the total revenue in the fiscal year 2023, with plans for aggressive expansion, especially in Asia-Pacific.

• Research and Development: Starbucks invests heavily in product innovation and sustainability initiatives. This includes developing new store formats like Starbucks Reserve and Roasteries and enhancing product offerings with seasonal beverages. In 2023, the company increased its R&D budget to $145 million, aiming to refine its customer service technology and sustainable coffee practices.

• Strategic Partnerships and Endorsements: Starbucks has formed strategic alliances with technology firms such as Alibaba and Uber Eats to enhance its digital and delivery capabilities, particularly in China. These partnerships have been critical in adapting to consumer demands for convenience and fast service.

• Future Growth: The company's growth strategy focuses on expanding its digital operations, enhancing the customer experience through technology like AI and mobile apps, and capitalizing on the growing demand for plant-based and healthier food and beverage options. Starbucks aims to open approximately 2,000 new stores globally in 2024, with a significant focus on high-growth markets such as China, where it plans to have over 6,000 stores by the end of 2024.

• Potential Risks: Challenges include market saturation in mature markets, fluctuations in raw material costs—particularly coffee beans—and evolving consumer tastes that may shift away from chain coffeehouses towards local specialty cafes. Regulatory risks, such as those related to health and safety standards and labor laws, also pose potential setbacks, especially in international markets.

4. Hershey (HSY)

Hershey is more than just a confectionery powerhouse; it is an integral part of American culture. Known for its chocolate bars, sweets, mints, and other snacks, Hershey has diversified its offerings to include baked products, beverages, and more, aiming to capture a broader share of the snack market. Hershey's business model revolves around product innovation, strategic market expansion, and maintaining a robust distribution network that reaches consumers at multiple touchpoints.

• Economic Moat: Hershey's economic moat is fortified by its extensive distribution network and high brand loyalty. It controls about 44% of the U.S. chocolate market, which acts as a significant barrier to entry for new competitors. Additionally, its strategic acquisitions, such as the purchase of Lily’s, amplify its presence in the better-for-you (BFY) snack segment, reinforcing its market position.

• Brand Power: Hershey's brand is synonymous with chocolate across the United States and increasingly around the world. The company leverages its heritage brands like Reese’s and Hershey's alongside newer brands to maintain its market dominance and appeal to a broad consumer base. Its marketing strategies focus on emotional connection, often tying its products to festive occasions and family celebrations, which enhances brand recall and loyalty.

• Global Reach: While Hershey predominantly operates in North America, it has been expanding its footprint globally. It strategically targets markets in Asia and Latin America, where demand for confectionery and snack products is growing rapidly. In 2023, international operations contributed approximately 20% to its total revenue, a figure that has been gradually increasing due to aggressive marketing and localization strategies.

• Research and Development: Hershey's commitment to R&D is evident in its innovation hubs, which focus on developing new products that meet changing consumer tastes and preferences. In 2023, Hershey spent around $150 million on R&D, aimed at innovation in taste, health-oriented ingredients, and sustainable packaging solutions to appeal to environmentally conscious consumers.

• Strategic Partnerships and Endorsements: Hershey has formed strategic partnerships across various sectors, including technology companies for enhanced retail experiences and entertainment firms for co-branded marketing campaigns. These partnerships help Hershey stay relevant in a competitive market and increase its sales through cross-promotional strategies.

• Future Growth: Hershey is strategically positioning itself in the rapidly growing snack segment, extending beyond chocolates to include salty snacks and healthier options. The global snack market is expected to grow at a CAGR of 5.34% from 2022 to 2027, presenting a lucrative opportunity for Hershey to leverage its brand strength and distribution capabilities for further growth.

• Potential Risks: Key risks include fluctuations in the prices of raw materials like cocoa, dairy, and sugar, which can impact profit margins. Hershey also faces the challenge of adapting to health trends that eschew sugary snacks. Moreover, global expansion brings risks associated with currency fluctuations and differing regulatory environments.

5. CVS Health (CVS)

CVS Health is a leading healthcare company in the United States, integrating a comprehensive range of health services that include pharmacy benefit management, retail and specialty pharmacy, health insurance, and primary care clinics. Its business model is designed to deliver innovative health solutions that lead to better health outcomes while controlling costs, making healthcare more accessible.

• Economic Moat: CVS Health's economic moat is built on its expansive network of retail locations, which doubles as mini health care hubs, and its vertical integration with Aetna, a leading health insurance provider. This integration allows CVS to manage the entire spectrum of health services, from preventive care to insurance coverage.

• Brand Power: CVS Health is a household name in the U.S., recognized for its convenience and breadth of healthcare services. It operates over 9,900 pharmacies and more than 1,100 MinuteClinic locations, providing care to millions of Americans.

• Global Reach: While CVS Health primarily operates in the U.S., its strategies and health solutions have a broader implication on global health policies and practices, especially in terms of preventive care and chronic disease management.

• Research and Development: CVS Health invests significantly in healthcare technology and innovations to improve patient care, pharmacy services, and operational efficiency. In 2023, the company allocated approximately $350 million to R&D, focusing on digital health initiatives and new health care models that integrate artificial intelligence and machine learning.

• Strategic Partnerships: CVS Health has forged strategic alliances with numerous healthcare providers, tech companies, and insurance entities to enhance its service offerings. These partnerships aim to expand its reach in telehealth services and provide more personalized care through advanced data analytics.

• Future Growth: The company is aggressively expanding its HealthHUB locations, aiming to have 1,500 operational by 2025. These hubs focus on chronic disease management, which is a rapidly growing segment due to aging populations and the increasing prevalence of chronic diseases.

• Potential Risks: Regulatory changes in the U.S. healthcare system, such as amendments to the Affordable Care Act or changes in prescription drug pricing, pose significant risks. Additionally, the competitive landscape is intensifying with new entrants like Amazon venturing into the pharmacy business.

Conclusion

In this exploration of five S&P 500 stocks—Walgreens, Pfizer, Starbucks, Hershey, and CVS—each trading near their 52-week lows despite offering attractive dividend yields over 2%, we've uncovered both challenges and opportunities. These companies, spanning various sectors, demonstrate robust business models and strong brand power, even as they navigate the complexities of market pressures and economic shifts. While their current low stock prices may raise concerns, they also pose potential as undervalued investments poised for recovery.

Each company presents a unique set of circumstances: Walgreens is expanding digital health solutions, Pfizer continues to lead in pharmaceutical innovation, Starbucks is enhancing global reach, Hershey is innovating within the confectionery industry, and CVS is redefining retail healthcare. However, investors should consider the inherent risks such as market volatility, regulatory changes, and competitive threats that could impact future growth.

Final Thought

As you weigh the potential of investing in these dividend-yielding stocks, consider not just the immediate benefits of dividends but also the long-term growth prospects each company offers. Are these stocks hidden gems in plain sight, signaling a buy opportunity at their low prices, or are they cautionary tales of stocks rightfully discounted due to underlying challenges? Reflect on how these companies align with your investment goals and risk tolerance. Remember, the most astute investors are those who look beyond the noise of market lows and highs to understand the true value of their investments. What will your next move be in this complex and ever-changing investment landscape?

Ready to Elevate Your Investing Game? If you found the insights in this post valuable and are eager for more in-depth analysis, investing and stock market strategies, don't miss out - Subscribe to our blog today! Stay ahead of market trends and refine your investment portfolio with our expert tips and advice. Loved what you read? Share this post with friends who are also interested in the stock market and help them get started on their investment journey. Together, let's build a smarter investing community!

Disclaimer: The content provided on this blog is for educational and informational purposes only and is not intended as financial, investment, tax, or legal advice. Investing in the stock market involves risks, including the loss of principal. The views, thoughts, and opinions expressed in this blog are solely those of the author and do not reflect the views of any company, organization, or other group. Readers are encouraged to perform their own research and due diligence before making any financial decisions and actions based on the content. Neither the author nor the publisher is liable for any losses or damages arising from the use of the advice or information contained herein.