2 Dividend Stocks Down Between 10% and 16% to Buy Right Now

While the S&P 500 approaches record highs, Honeywell International (HON) and Energy Transfer (ET) have experienced year-to-date declines of 10.2% and 16.1%, respectively, positioning them as potential value buys. Honeywell is undergoing a significant strategic overhaul, including the spin-off of Solstice Advanced Materials and future separations of its aerospace and automation segments, a move driven by activist investor Elliott Management to unlock shareholder value, despite the company's recent sluggish growth and current discounted valuation. Energy Transfer, a midstream energy firm, is highlighted for its stable, fee-based contract model that mitigates commodity price exposure, enabling substantial growth investments and planned 3-5% annual dividend increases, which support its attractive 7.9% yield despite recent stock weakness.

Analysis

The S&P 500 is currently hovering near an all-time high, yet industrial conglomerate Honeywell International (HON) and midstream energy firm Energy Transfer (ET) have significantly underperformed, declining 10.2% and 16.1% year-to-date, respectively. This divergence from the broader market's strong performance positions both stocks as potential value opportunities for discerning investors.

Honeywell is undergoing a major strategic overhaul, including the spin-off of Solstice Advanced Materials with an October 17 record date, and future separations of its aerospace and automation segments, a move largely influenced by activist investor Elliott Investment Management. Despite recent sluggish growth and a five-year decline in free cash flow, HON's current P/E of 22.8 and forward P/E of 19 are below its 10-year median of 23.7, indicating a discounted valuation. This restructuring is intended to unlock shareholder value through more focused business entities.

Energy Transfer's stock decline is primarily attributed to recent dips in oil and natural gas prices, though its business model provides significant insulation from commodity price volatility. The company operates over 140,000 miles of pipelines, generating predictable revenue and steady cash flows through long-term, fee-based contracts. ET is investing nearly $5 billion in growth projects this year, including the Hugh Branson pipeline and Nederland Flexport NGL terminal, while maintaining a robust 7.9% dividend yield.

Despite substantial growth investments, Energy Transfer anticipates increasing its annual dividend payout by 3-5%, supported by $1.96 billion in Q2 distributable cash flow. These expansion projects are expected to drive future cash flow and earnings growth, reinforcing the dividend and potentially driving stock appreciation. Both companies present compelling cases for patient, value-oriented investors seeking income and long-term capital appreciation amidst current market conditions.

Key Decisions for Investors

• Consider initiating or adding to a position in Honeywell, leveraging its current discounted valuation and the potential for significant shareholder value creation from the planned spin-offs and segment separations.
• Evaluate Energy Transfer as a compelling dividend growth opportunity, given its stable fee-based revenue model, substantial growth investments, and commitment to 3-5% annual dividend increases despite commodity price volatility.
• Investors should monitor the execution of Honeywell's spin-offs and the performance of Energy Transfer's new growth projects, potentially staggering entry points for more certainty.
• These opportunities may appeal to value and income-focused investors seeking diversification from high-flying S&P 500 components, particularly those with a long-term investment horizon.