2 Dividend Stocks Booted From S&P 500: Bargain or Trap?
💡 Key Takeaway
Campbell's offers a rare 7% yield with slow growth, while Pool Corp delivers powerful dividend compounding; both are worth considering after index-driven selling.
What Happened: Index Rebalancing Hits Two Dividend Stocks
On June 22, S&P Dow Jones Indices removed Campbell's Company (CPB) and Pool Corporation (POOL) from the S&P 500, replacing them with semiconductor and electronics names. This shift reflects the index's growing tilt toward tech.
Both stocks were moved to the S&P SmallCap 600, meaning they remain publicly traded but lose the visibility and passive buying that comes with S&P 500 membership. The immediate effect is mechanical selling by index funds and ETFs that track the benchmark.
Campbell's has been under pressure for over a year due to weaker volumes, costs from its 2024 Sovos Brands acquisition, and an ERP system conversion. Its dividend yield has climbed above 7% as the share price fell.
Pool Corp, meanwhile, has a more modest 2.4% yield but boasts 22 consecutive years of dividend increases, averaging 17% annual growth over the past decade. The company distributes pool supplies and equipment, with about 60% of revenue from recurring maintenance and repair.
Both companies were removed due to mechanical rebalancing, not fundamental deterioration. This creates a potential opportunity for investors willing to look past the index noise.
Why It Matters: Temporary Selling Pressure Creates Entry Points
Index removals trigger forced selling by passive funds, which can depress stock prices temporarily. For dividend investors, this can create attractive entry points if the underlying business remains sound.
Campbell's 7% yield is rare for a consumer staples company with a 51-year dividend streak. While dividend growth has been slow (1.26% over five years), the payout is well-covered by earnings (76% payout ratio) and cash flow. The Rao's brand, which crossed $1 billion in sales, provides a growth catalyst.
Pool Corp's dividend growth story is compelling. With 22 years of raises and a 17% annual growth rate, it exemplifies the power of compounding. The business benefits from recurring maintenance revenue, which provides stability even in weak housing markets.
However, risks remain. Campbell's faces operational headwinds from its ERP conversion and acquisition integration. Pool Corp is sensitive to housing market activity and consumer confidence, which could be pressured by elevated interest rates.
Investors should view the index removal as a short-term event that doesn't change the long-term fundamentals. The key is to assess whether each stock fits your income or growth needs.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
Both stocks are worth buying on the dip, but for different reasons: CPB for high income, POOL for dividend growth.
Campbell's offers a high yield with a strong brand moat, while Pool Corp provides consistent dividend compounding. The index removal is a temporary headwind, not a fundamental issue. However, investors should monitor CPB's operational turnaround and POOL's housing market exposure.
What This Means for Me
