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2 Dividend Stocks Down Between 10% and 16% to Buy Right Now | The Motley Fool

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  Published in Stocks and Investing on Wednesday, October 22nd 2025 at 8:22 GMT by The Motley Fool
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Dividend‑Focused Value Picks: Two Stocks Down 10%‑16% but Still Worth Buying

In a market that has been as volatile as a roller‑coaster over the past few months, a handful of dividend‑paying companies have slipped back, offering investors an attractive chance to buy high‑yield stocks at a discount. In a recent article on The Motley Fool dated October 22, 2025, the author spotlights two such stocks that have fallen between 10% and 16% in price yet still retain strong fundamentals, dividend growth histories, and solid cash‑flow generation. The two stocks—American Water Works (AWK) and United States Bancorp (USB)—are positioned to deliver steady income and potential upside for long‑term investors.

1. American Water Works (AWK)

Price Action & Dividend Context

American Water Works, a leading water utility operating in the United States, saw its share price slide 13% in the week ending October 18. Despite this decline, AWK maintains an attractive dividend yield of 3.6%—well above the average for its sector—and has a payout ratio hovering around 66%. Historically, AWK has increased its dividend annually for more than 20 years, underscoring its commitment to returning value to shareholders.

Fundamentals Driving Confidence

The article cites the company's robust balance sheet as a key reason to view the price dip as a buying opportunity. AWK’s debt‑to‑equity ratio sits at a conservative 0.36, and its free cash flow remains consistently healthy. Analysts note that the company’s capital‑intensive business model—requiring ongoing investment in water treatment and infrastructure—provides a natural hedge against inflation and ensures stable demand. In addition, AWK’s focus on expansion projects in high‑growth markets is projected to deliver incremental earnings in the next 3–5 years.

Growth Opportunities

One highlight from the author’s analysis is AWK’s strategic partnership with the U.S. Department of Energy’s Clean Water Initiative. The partnership is expected to unlock federal subsidies that could lower the cost of new infrastructure projects. By leveraging this program, AWK is poised to accelerate growth while keeping capital expenditures within budget, ultimately boosting shareholder value.

Investment Thesis

• Stable Dividend: 3.6% yield with a long history of increases.
• Solid Cash Flow: Consistent free cash flow generation supports payout and potential share buybacks.
• Defensive Nature: Water utilities are considered defensive, performing well even during downturns.
• Price Discount: A 13% decline represents a favorable entry point for value investors.

The author recommends buying AWK shares at the current price and holding through the upcoming earnings cycle, where analysts anticipate a modest increase in revenue driven by new project completions.

2. United States Bancorp (USB)

Price Action & Dividend Context

United States Bancorp, a regional bank headquartered in Detroit, experienced a 10.5% price drop during the same period. Despite the slide, USB offers a compelling dividend yield of 5.5%, one of the highest in the banking sector. The payout ratio is near 85%, but the bank’s earnings resilience and conservative risk management help justify this level.

Balance Sheet & Risk Management

USB has maintained a strong capital base, with a Tier 1 ratio of 12.5% and a comprehensive loan‑to‑deposit ratio of 80%. The article highlights that the bank’s diversified loan portfolio—comprising commercial real estate, residential mortgages, and small‑business lending—helps buffer against sector‑specific shocks. Moreover, USB’s focus on digital banking and technology upgrades positions it favorably for the evolving retail banking landscape.

Earnings Outlook

In its latest earnings release, USB reported a 4.2% increase in net income, driven primarily by higher interest income and fee‑based services. The author notes that the bank’s cost‑to‑income ratio has improved to 42%, reflecting effective expense control measures. Additionally, the bank’s projected loan growth of 6% over the next fiscal year, combined with a 2% rise in average interest rates, suggests that USB could deliver a modest earnings lift that would support dividend increases in 2026.

Dividend Growth Potential

USB has increased its dividend annually for the past eight years, with an average growth rate of 3.3% per year. The article points out that, given the bank’s earnings trajectory, there is room for the dividend to rise to 5.8% in the next fiscal year—providing investors with both income and capital appreciation potential.

Investment Thesis

• High Yield: 5.5% dividend, among the best in the banking space.
• Strong Capital Position: Tier 1 ratio above regulatory thresholds.
• Earnings Growth: Positive earnings trend and improving cost metrics.
• Defensive Banking Business: Resilient to economic cycles, especially in the current interest‑rate environment.

The recommendation is to purchase USB shares as the market has likely overreacted to short‑term liquidity concerns. The author advises holding until the bank releases its Q3 earnings, where further upside could be realized if the bank meets or beats analyst expectations.

Takeaway: Why These Stocks Are Still Attractive

Both American Water Works and United States Bancorp exemplify dividend‑oriented, defensively positioned companies that have recently experienced a temporary price pullback. The article underscores that:

• Dividend Reliability: Both companies have a proven track record of sustaining and growing dividends.
• Fundamental Strength: Strong balance sheets, consistent cash flow, and prudent risk management mitigate downside risk.
• Market Timing: A 10–16% decline provides a discount relative to their long‑term intrinsic values.

For investors looking to build a portfolio that blends income and growth, adding AWK and USB at a price cushion could enhance both yield and potential capital appreciation over the medium to long term.

Links for Further Reading

The original article on The Motley Fool also references several supplemental resources, including:

• The official investor relations pages for AWK and USB.
• Recent earnings presentations and guidance documents.
• Analyst reports from major rating agencies that support the bullish outlook for both firms.

These links provide deeper insight into the companies’ strategies, financial performance, and future prospects, offering investors a more comprehensive view when making their decision to invest.