We recently published a list of the 15 Best Dividend Aristocrat Stocks with Over 3% Yield. In this article, we are going to take a look at where PepsiCo, Inc. (NASDAQ:PEP) stands against other best dividend aristocrats with a high yield.
Dividend Aristocrats are the companies that have raised their payouts for 25 consecutive years or more. Dividends have been an important part of the overall market return for a very long time. According to a report by S&P Global, dividends have represented approximately 31% of the total return of the broader market from 1926 to February 2025, while capital appreciation has accounted for 69%.
Growing dividends consistently highlight the companies’ confidence in their firms’ prospects as market participants see this as a sign of corporate maturity and strong balance sheets. Dividend aristocrats reveal characteristics of both capital growth and dividend income, as opposed to alternative income strategies that mainly pay attention to pure yield or pure capital appreciation.
Investors are more inclined toward dividend growth stocks, and the performance of these equities has also remained stable over the years. According to a report by S&P Global, dividend aristocrats have reported higher returns with lower volatility over the long run as compared to the broader market, which eventually resulted in higher risk-adjusted returns.
In addition to dividend growth, dividend yield is also an important component of total return. The ability to increase dividends does not come at the expense of lower yields; in fact, the dividend aristocrats index has consistently delivered higher yields than its benchmark. The index had dividend yields within the range of 2.0% to 2.8% over the 28-year period, as reported by S&P Global. Moreover, the average dividend yield of the index was 2.5%, compared with a 1.8% dividend yield of the broader market.
As highlighted above, dividend aristocrats have shown lower volatility as compared to the broader market index. Their ability to provide downside protection can be seen in the upside and downside capture ratios. The S&P report highlighted that the dividend aristocrats index has outperformed the market index 66.67% of the time in down months and 43.88% of the time in up months. Notably, the index also has a lower drawdown level compared with the benchmark index. In addition, the dividend aristocrats index provided an average excess return of 0.87% in down months over the broader market. To further emphasize their low volatility, the report mentioned that the dividend aristocrats had a market beta of 0.8 between December 29, 1989, and February 28, 2025.
With the AI boom and tech stocks taking center stage, dividend stocks are somehow overlooked by the market. However, the recent market sell-off has restored their importance, as the Dividend Aristocrats Index has surged by over 2% since the start of 2025, compared with a nearly 5% decline in the broader market. The significance of these equities is much more apparent over long periods of time. According to the S&P Global report, the dividend aristocrats index outperformed its benchmark by an average of 1.59% per year between January 2000 and February 2025. This outperformance was because of the fundamental characteristics of the constituents of the index.
A close up of a glass of a refreshing carbonated beverage illustrating the company’s different beverages.
Our Methodology
For this article, we scanned a list of the Dividend Aristocrat index, which tracks the performance of companies that have raised their payouts for 25 consecutive years or more. From that list, we picked 15 stocks with dividend yields above 3%, as of March 29. The stocks are ranked in ascending order of their dividend yields.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
PepsiCo, Inc. (NASDAQ:PEP)
Dividend Yield as of March 29: 3.63%
PepsiCo, Inc. (NASDAQ:PEP) is an American food, snack, and beverage company, headquartered in New York. The company posted strong earnings in the FY24, with revenues coming in at $91.8 billion, up from $91.4 billion in 2023. Its operating profit also grew to $12.8 billion from $11.9 billion in FY23. The company reported a net income of $9.6 billion. For FY25, it expects low single-digit organic revenue growth and mid-single-digit growth in core constant currency EPS.
PepsiCo, Inc. (NASDAQ:PEP) has expanded over the years, following its strategy of continuous acquisitions. The company recently announced the acquisition of poppi, which is a prebiotic soda brand. This would mark PepsiCo’s entry into the functional soda market and would expand its portfolio with ‘better-for-you’ options.
PepsiCo, Inc. (NASDAQ:PEP) has a strong cash position, which makes it one of the best dividend aristocrat stocks on our list. In FY24, the company generated $12.5 billion in operating cash flow. It also plans to return around $7.6 billion to shareholders through dividends in the upcoming fiscal year. The company offers a quarterly dividend of $1.355 per share and has a dividend yield of 3.63%, as recorded on March 29. In February, PEP achieved its 53rd consecutive annual dividend hike, becoming a reliable choice for investors.
Insider Monkey’s database of Q4 2024 indicated that 69 hedge funds held stakes in PepsiCo, Inc. (NASDAQ:PEP), up from 58 in the previous quarter. The consolidated value of these stakes is more than $4.5 billion. With over 5.6 million shares, Fundsmith LLP was one of the company’s most prominent stakeholders at the end of Q4.
Overall, PEP ranks 6th on our list of the best dividend aristocrat stocks. While we acknowledge the potential of PEP as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than PEP but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
