If there’s an upside to a down market, it’s that not every company whose shares get punished will end up in the dustbin of history. As the market declines, quite often great businesses with solid long-term prospects get put on sale, giving investors a chance to buy at great prices. When those businesses also pay supported, sustainable, and often growing dividends, then investors who buy the shares can get paid for their patience as they wait for a recovery.

To help figure out whether such opportunities are emerging in today’s market, three investors and Fool.com contributors named beaten-down dividend stocks that look like they could be screaming buys this June. They uncovered Stanley Black & Decker (SWK -1.61%), Home Depot (HD -0.26%), and 3M (MMM -1.49%). Read on to find out why they feel that way and decide for yourself whether any or all of them deserve a spot in your portfolio.

Image source: Getty Images.

The right tool for your portfolio

Eric Volkman (Stanley Black & Decker): Stocks don’t get much more beaten-down than toolmaker Stanley Black & Decker. The company’s stock has cratered by almost 40% so far in 2022, and its price is teasing its one-year low.

That’s hardly fair. Stanley Black & Decker is a top name in the tools and associated goods space, and has been for years. It owns some of the top tool brands you’ll find in millions of American closets and garages; outside of the two that comprise the company’s name, it also sells the Craftsman and DeWalt lines, among numerous others.

Like many of the best dividend stocks, Stanley Black & Decker has historically managed to consistently (if unspectacularly) grow revenue and post a bottom-line profit. But this has been overshadowed lately by a notable increase in the costs of raw materials, a key input for the company.

As a result, it recently cut its net profit and free cash flow guidance for full-year 2022, which sent investors scurrying for the exits. Never mind that in its first quarter, the company trounced the average analyst earnings estimate for its first quarter, or managed to increase revenue 20% year over year thanks in no small part to a clever and complementary acquisition (of gardening equipment purveyor MTD).

Stanley Black & Decker is doing what it can to cope with the increase in raw material costs, notably raising prices for its products. But that crunch with raw materials won’t last forever, and even while it does the company will continue to operate in an environment where key business drivers — like the frothy U.S. housing market — should continue to improve.

The recent investor exodus has left Stanley Black & Decker rather cheap on its valuations. It trades at a forward price-to-earnings ratio of less than 12, and a price-to-book value barely above 1 — both rather low compared to other manufacturing stocks.

Meanwhile, although 2022 probably won’t be a banner year for the company, analysts are expecting a much sunnier 2023. Collectively, they are anticipating a nearly 17%-per-share increase in net earnings.

Finally, a weakened share price means a meatier dividend yield. Stanley Black & Decker’s currently stands at nearly 2.7%, a very attractive figure when matched not only against stocks in its sector, but also the hallowed grouping of Dividend Aristocrats that it’s a part of.

Home Depot is an excellent business selling at a fair price after the sell-off 

Parkev Tatevosian (Home Depot): One of my favorite beaten-down dividend stocks to buy now is Home Depot. The company has had a wild couple of years, starting with a surge in revenue at the pandemic’s onset, followed by the slowing growth in recent quarters. However, investor pessimism surrounding Home Depot’s prospects as economies reopen is providing a lower price to potential investors. Indeed, Home Depot’s stock is down 28% off its highs.

Short-term fluctuations aside, Home Depot has done an excellent job growing revenue, expanding profit margins, and raising earnings per share over the longer run. That’s good news for dividend investors because, ultimately, dividends are paid out of earnings. Home Depot’s revenue went from $75 billion to $151 billion in the previous decade. The operating profit margin expanded from 10.4% to 15.2% during that same time. It all flowed to the bottom line; it grew earnings per share at a compound annual rate of 20% over 10 years.

That undoubtedly helped Home Depot raise its dividend payment from $1.16 in 2013 to $6.60 in 2022. That means income investors in 2013 who held their stock are getting nearly six times the dividend they signed up for. Today’s income investors can expect Home Depot to boost the dividend over the next decade as well.

HD Price to Free Cash Flow data by YCharts

The fall in Home Depot’s stock has it trading at a fair valuation of a price-to-earnings ratio of 19 and a price-to-free-cash-flow ratio of 28. Investors can never be faulted for paying a reasonable price for an excellent business. Home Depot is an outstanding beaten-down dividend stock to buy for those reasons. 

An industrial titan whose legal troubles are keeping its shares down

Chuck Saletta (3M): Industrial titan 3M’s shares currently trade for substantially less than they did five years ago, in part due to ongoing legal and environmental costs associated with its business. Such costs are unfortunately common to many companies, especially ones with long histories of operations and broad-scale product lines that people rely on for things like health and safety.

That softness in its shares offers investors a decent opportunity to buy a part of a world-class company at a reasonable price. 3M trades at around 15 times trailing earnings and closer to 13 times its anticipated forward earnings.  In addition, its shares sport a 4% yield  — thanks to a dividend that has increased for 64 consecutive years, yet which only consumes around 62% of its earnings. 

Perhaps even better, analysts are expecting only modest earnings growth of around 6.6% annualized over the next five or so years. A growth rate like that gives investors good reason to believe the company can keep up its trend of dividend increases over time. It also means the market doesn’t have incredibly high expectations built in, which, when combined with its reasonable current valuation, could help moderate the risks of further declines.

Giving further reason to believe in its future, 3M has a strongly embedded culture of innovation. This is how the same company that makes Post-it notes and Scotch tape can also make products as varied as N95 face masks and car repair kits. That culture of innovation means that while the future is never certain, there’s a good chance 3M will find a way to adapt and thrive in it.

Get paid for your patience

Stanley Black & Decker, Home Depot, and 3M are solid companies that look like they have the staying power to make it through this current down market and on to brighter days ahead. The market’s recent sell-off has made them available at reasonable prices, while their dividends offer investors cold, hard cash for their patience as they wait for the potential of a better future.

If there’s an upside to a down market, it’s that offers like this only tend to come around when those brighter days look like they’re far, far away. Nobody really knows how long it will take for the market to recover. Getting paid decent and potentially growing dividends while you wait for that day to come certainly makes it a much more palatable proposition. So decide for yourself which of these companies may deserve a spot in your portfolio, and get yourself in a better spot to ride out the rockiness.