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3 Dividend Stocks That Pay You More Than Pepsi Does

By Timothy Green, Sean Williams, and Tyler Crowe - Updated Apr 18, 2019 at 7:09PM

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The soda and snacks company has a great dividend, but there are even better options.

Check out the latest PepsiCo earnings call transcript.

Food and beverage giant PepsiCo (PEP 1.64%) is a solid dividend stock, with a yield above 3%. The company's brands are time-tested and well-known, and it's immensely profitable. The company consistently converts about 10% of its revenue into free cash flow.

But despite PepsiCo being a good dividend stock, there are even better options. Three of our Motley Fool contributors have singled out MPLX LP (MPLX 1.75%), Hanesbrands (HBI -0.39%), and Sun Life Financial (SLF 1.24%) as dividend stocks that sport more attractive dividends than PepsiCo. Here's what dividend investors need to know.

Products from PepsiCo's portfolio.

Image source: PepsiCo.

High yield backed by a great and fast-growing energy partnership

Tyler Crowe (MPLX LP): Finding stocks in the energy sector with higher dividend yields is easy. Just stick a bunch of ticker symbols on a wall, put on a blindfold, and throw a dart. If you want to find a higher yield in the energy sector that you can reliably count on for years with considerable growth ahead, then you might want to take the blindfold off and aim for MPLX.

MPLX offers the rare combination of a reliable payout backed by solid financials, incredible growth prospects, and a corporate structure in which investors and its managing partner (Marathon Petroleum) are on relatively equal footing.

MPLX is one of the nation's largest oil and gas transportation and logistics companies and is structured as a master limited partnership. This business is typically known for carrying incredibly large amounts of debt because the assets -- mostly pipelines and processing facilities -- are expensive to build but require little maintenance capital. That means loads of free cash flow to return to investors. One of the more attractive aspects of MPLX is that it has one of the lowest debt loads in the business, and its cash flow comfortably covers its payout. As of the most recent quarter, MPLX had a distribution coverage ratio of 1.47 (in this business, a number higher than 1.2 is good), and its debt-to-EBITDA levels remain among the best in the business.

MPLX Financial Debt to EBITDA (TTM) Chart

MPLX Financial Debt to EBITDA (TTM) data by YCharts.

Having all that excess cash after each quarter gives MPLX's management ample capital to spend on its growth program, which keeps getting bigger by the day. In the third quarter alone, the company announced a slew of large pipeline projects that will likely require billions in capital spending over the next few years. Also, after buying out Marathon's general-partner stake and the pervasive rights to cash flow that came with it, the corporate structure is set in such a way that both Marathon and public investors are on more equal footing.

These factors are what make MPLX one of the better-run and well-positioned businesses in this industry. With a distribution yield of 8.4% today, investors should take a good hard look at MPLX.

Check out the latest MPLX earnings call transcript.

A boring dividend stock

Tim Green (Hanesbrands): I won't sugarcoat it: Hanesbrands stock has underperformed the market by a wide margin over the past six months. When shares of the apparel manufacturer bottomed out on Christmas Eve, it had lost about 50% of its value in just a handful of months.

This decline, driven by a slumping stock market, news that retailer Target has plans to drop an exclusive line provided by Hanesbrands' Champion brand, and the bankruptcy of Sears Holdings, wasn't completely unwarranted. But it was drastically overdone. Even after a 20% rebound, Hanesbrands stock trades for a single-digit multiple of earnings.

The beatdown Hanesbrands stock received over the past few months has turned it into a fantastic dividend stock, with a dividend yield of 4.3%. That's well above the yield offered by PepsiCo. And despite that sky-high yield, Hanesbrands' dividend looks safe. Based on the midpoint of the company's adjusted earnings guidance for 2018, the dividend eats up just 35% of the bottom line.

Hanesbrands is the very definition of a boring stock. But not only does it offer a high dividend yield, the stock could soar as the market comes to its senses and values the company appropriately. That's a win-win for dividend investors.

Check out the latest Hanesbrands earnings call transcript.

Boring is beautiful with this high-yield company

Sean Williams (Sun Life Financial): Pepsi is a great brand-name company with a yield that handily surpasses the average payout for the broader market. But if you want a company with even better income prospects, consider insurance and wealth-management company Sun Life Financial.

Sometimes boring is beautiful, and when it comes to simplicity, pricing power, and profitability, there's nothing quite like the insurance business. While no insurer is immune to occasional dips in profitability from unpredictable claiming patterns, insurers by nature possess the pricing power to increase premiums following a period of higher claims or to steadily increase premiums with the assumption that a higher-claims period is imminent at some point in the future.

Since Sun Life covers such a broad swath of insurance products (i.e., health, life, long- and short-term disability, dental, absence management, and medical stop-loss), it not only possesses this pricing power but offers the benefits of product diversity, further minimizing any of these surprise hits from an uptick in claims.

Sun Life Financial's asset-management segment has also been a recent star. The passage of the Tax Cuts and Jobs Act and a subsequently lower corporate income tax rate led to a significant boost in income in the United States. But Sun Life has also benefited from cost-cutting within its asset-management division and has attracted higher-net-worth clients. The company's wealth management segment, which could attract even more investors with global markets being volatile of late, ended the third quarter with $687.2 billion in assets under management.

Sun Life also has a growing presence in higher-growth Asian markets. Insurance sales in Asia rose a healthy 7% in the third quarter, but its Asian wealth sales were also challenged by market volatility in India and the Philippines. Make no mistake, though, these emerging market regions play a crucial role in aiding Sun Life's longer-term growth rates.

In other words, this is a well-oiled machine with a payout ratio of around 40%. This suggests there's plenty of room for dividend growth and virtually no concerns of a dividend cut. With a yield of 4.6%, you'd struggle to find a safer dividend stock.

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Stocks Mentioned

Sun Life Financial Inc. Stock Quote
Sun Life Financial Inc.
$46.38 (1.24%) $0.57
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$169.39 (1.64%) $2.73
MPLX LP Stock Quote
$29.66 (1.75%) $0.51
Hanesbrands Inc. Stock Quote
Hanesbrands Inc.
$10.25 (-0.39%) $0.04

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