2 Beaten-Down Dividend Stocks Near 52-Week Lows. Should you buy the dips?

Does the stock market seem overbought to you? After watching the benchmark S&P500 The index has climbed about 28% over the past year, so no one can blame value-minded investors for thinking twice before buying stocks these days.

The benchmark index is up sharply, but not all of its components participated in the rally. Actions of Pfizer (PFE 0.66%) And Walgreens Boot Alliance (WBA 0.50%) have been down by more than 25% in the last 12 months.

Both of these dividend-paying stocks have been so beaten down that they offer yields above 5% at recent prices. Here's a closer look to see if buying them on a dip is a smart move.

1. Walgreens Boot Alliance

Shares of Walgreens Boots Alliance have lost about 47% of their value over the past 12 months. The company had been steadily increasing its dividend payout for nearly 50 years. Unfortunately, a series of losses forced the retail pharmacy chain to cut its quarterly payments by 48% this year.

Walgreens stock has fallen enough that its reduced dividend equates to a 6.2% yield at recent prices. This year, management expects adjusted earnings to be between $3.20 and $3.35 per share. That's more than enough to cover its dividend, which it recently cut to $1.00 per share per year.

Walgreens' attempt to become more than just a retail pharmacy chain has proven to be a disaster for its shareholders. In recent years, it has invested billions in VillageMD clinics that it opened alongside hundreds of its pharmacies.

Walgreens and the clinic's operating partner, Cigna, recorded a $12.4 billion impairment charge earlier this year related to VillageMD, and the partners are taking a big step back. Walgreens plans to close about 160 of these clinics.

Cutting costs by closing large numbers of underperforming health clinics could give Walgreens a boost in profits over the next two years that the market isn't expecting. The stock trades at less than five times management's expected adjusted earnings for fiscal 2024.

Although Walgreens now looks like a good deal, it's important to remember that it only takes a minute to tell your doctor you want to change pharmacies. The retail pharmacy industry is so competitive that it's probably best to wait another year or two to see if Walgreens can use its size to its advantage and generate growing profits.

2. Pfizer

Investors expected sales of Pfizer's COVID-19 products to decline as a result of the pandemic. But these losses were much greater than expected. In the first quarter, sales of Comirnaty, the company's COVID-19 vaccine, fell 88%, and those of Paxlovid, an antiviral treatment, fell 50% year over year.

Pfizer said its total first-quarter revenue decreased 20% year-over-year and 42% compared to the first quarter of 2022.

Although it appears that Pfizer is in deep trouble, it's important to remember that big pharma is made up of several parts moving in opposite directions. Excluding Comirnaty and Paxlovid, first quarter sales increased 11% year-over-year.

The heaviest losses for Comirnaty and Paxlovid are already behind us, but Pfizer has plenty of new growth drivers to drive total sales and profits higher in the years to come. Towards the end of 2023, it acquired Seagen and its collection of cancer therapies.

One of four marketed treatments Pfizer acquired from Seagen, Padcev was recently approved to treat newly diagnosed patients with advanced bladder cancer. Padcev's sales could reach more than $4 billion a year and many more blockbusters could be on the way. The FDA approved a record nine new drugs from Pfizer last year.

Unlike Walgreens, Pfizer recently increased its dividend for the 15th consecutive year. At recent prices, it offers a dividend yield of 5.8%, which is expected to continue to grow thanks to all the new drugs it launches. Buying stocks during a downturn and holding them for the long term seems like a smart move for most investors.