While the stock market produced impressive gains through late 2020, investors are bracing for more volatility in the next year. The pandemic threat won't disappear quickly, after all. And key economic metrics, like unemployment, suggest that the recession could get worse in the months ahead.
Those risks make dividend stocks even more attractive as investment options since they tend to be more stable than their growth-focused peers. Their payouts also help cushion your portfolio through the inevitable market downturns.
PepsiCo stock offers a nice balance between growth and income right now. The beverage and snacks giant's stock has beaten the market in 2020 even as its dividend, which yields 2.8% as of early December, pays far more than the 1.7% that investors can get from owning the broader S&P 500.
It's easy to see why Pepsi is looking impressive on both of those fronts. Its wider portfolio has allowed it to almost fully recover from the pandemic sales hit while rival Coca-Cola shrinks. Pepsi is on pace to grow organic sales by 4% this year, or roughly the same rate that management initially projected before COVID-19 disrupted the beverage and snack industries.
At the same time, the company is producing enough cash to fund gushing returns to shareholders, both through stock buybacks and the dividend. That dividend payment will almost certainly see its 49th consecutive annual increase when Pepsi announces Q4 results in mid-February.
Kimberly-Clark pays almost a full percentage point of higher yield than its peer Procter & Gamble (PG -0.87%). But you don't have to give up much to gain that extra income that today sits at over 3%.
Sure, P&G is growing more quickly and gaining market share in the key U.S. geography. But Kimberly-Clark is holding its own in most of its core products, including diapers. The owner of the Kleenex tissue and Huggies diaper brands is also finding plenty of room to cut costs, which suggests it could make progress at closing the profitability gap between itself and the market leader.
Kimberly-Clark is due to close its fiscal 2020 in late January and, like Pepsi, is highly likely to announce its 49th consecutive annual increase at that time. And there's a good chance that unusually strong sales growth will support a more robust increase than the 3.9% hike that investors saw a year ago.
A key factor behind Hasbro's market-beating 3% dividend yield is the toys and games giant's weak 2020 growth. Sales fell 4% in fiscal Q3 and were down double digits through the first three quarters of the year.
Hasbro is still a strong global business with impressive prospects, though. Growth in company owned brands like Magic: The Gathering and Monopoly, along with licensed franchises like Star Wars, nearly offset collapsing revenue in its film and entertainment division last quarter.
Hasbro still managed to generate higher operating profit and has produced $500 million of cash flow this year, up from $390 million a year earlier.
Despite that strong cash flow, Hasbro's dividend growth prospects are being held back by the extra debt the company took on to fund major acquisitions in 2019. But a decent holiday season could put management in a position to consider resuming its stock buyback spending, in addition to those steady dividend increases, in 2021.