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3 Dividend Stocks That Pay You More Than Pepsi Does

By James Brumley - Feb 6, 2021 at 7:18AM

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Income investors don't necessarily have to take a little more risk for a little more yield.

PepsiCo (PEP -0.69%) is a familiar name, but it's more than most consumers or investors might realize. Not only is it the company behind Pepsi Cola and its sister sodas like Mountain Dew and 7-Up, it's also the maker of Fritos, Ruffles, and Lay's snack chips just to name a few. PepsiCo's even waist-deep into meal-minded with brands like Quaker Oats and Rice-a-Roni. These are goods consumers buy over and over again, making them well-suited to support a recurring dividend.

To this end, PepsiCo has paid a dividend every quarter since 1965, and has upped its dividend payout every year since 1972, making 2020 its 48th consecutive year of dividend growth. And that places the ubiquitous snack brand in august company, making it a Dividend Aristocrat. Not bad.

However, at right around 3%, PepsiCo's dividend yield leaves something to be desired by income-minded investors. Verizon Communications (VZ 0.18%), Lockheed Martin (LMT 0.55%), and The Coca-Cola Company (KO -0.88%) all pay out a little more without imposing any additional risk. Here's a closer look.

Hand drawing a blue, rising dividend line.

Image source: Getty Images.

Think of Verizon as a monthly tollbooth

Dividend yield: 4.6%

It's not a name that needs an introduction. Verizon is the nation's biggest wireless service provider, managing more than 94 million customer connections. It's also got modest exposure to the cable television market, and even owns former powerhouse web hubs AOL and Yahoo!.

Mostly, though, it's a wireless service provider, which makes it a great dividend stock. While the company may have to compete with names like AT&T and T-Mobile, consumers typically choose to keep their phones connected. While the cellphone business wickedly competitive, most people stick with their provider from one month to the next. Verizon's churn rate last quarter was less than 1%.

Perhaps the most powerful argument for Verizon being a top-notch dividend stock, however, is how much of its profits it doesn't pass along to shareholders. Of the $4.30 per share the company earned in 2020, only $2.49 of it was earmarked for dividends. That other $1.81 leaves the company with plenty of earnings to reinvest in its own growth, or provide a payout cushion should things turn tough.

The DOD needs Lockheed Martin

Dividend yield: 3.1%

Most investors know Lockheed Martin is a defense contractor. What most people may not fully appreciate, however, is the breadth of its portfolio. Airplanes, helicopters, and military ship components are just part of its repertoire. The company also makes radars, electronic warfare solutions, missile systems, military command centers, and training tools just to name a few. This diversification means Lockheed's always got something to sell.

While it's heavily reliant on an increasingly indebted government's willingness to spend on defense hardware, that's not something shareholders should worry too much about. Although federal defense spending was curbed between 2010 and 2015 following a sharp increase in the years following the 9/11 attacks, this long-term uptrend in military spending has been growing every year since 2016, and for most years leading up to 2010. In this vein, this defense contractor hasn't failed to log higher year-over-year sales in any quarter since the third quarter of 2016.

Sure, the U.S. government could tighten its military purse strings again in the future. However, that doesn't necessarily spell doom.

Lockheed Martin makes some of the country's most-needed military equipment. Lockheed manufactures the F-22 and the F-35 aircraft, for example, which are the U.S. military's go-to fighter jets for the foreseeable future. That's especially true of the F-35, which is now in use by the U.S. Air Force, Marines, and Navy. All told, Lockheed is planning the production of around 3,000 units of this fifth-generation fighter plane. Only around 600 have actually been delivered to-date, however, setting the stage for years of dividend-sustaining revenue.

Coca-Cola tastes better to income investors

Dividend yield: 3.3%

Finally, while PepsiCo is a solid enough dividend stock, its chief rival Coca-Cola is a slightly better least in terms of current yield. Technically, PepsiCo has upped its dividend at a faster clip in recent years. Those increases are always subject to change, though, and Coke may be entering a period of greater profitability that translates into more disposable income being passed along to shareholders.

This prospective improvement hinges on changes consumers can't see, but matter all the same.

Simply put, Coca-Cola is getting out of the bottling business so it can focus more on licensing and franchising. Over the course of the past several years, it's sold its bottling operations back to third-party bottlers. That's why revenue has been slowly shrinking since 2014.

There's a method to the madness, though. While sales may be slipping, licensing its flavors and brand names to third-party bottlers is a higher-margin business.

It's admittedly been difficult to see the benefit. We were seeing glimmers of margin growth in 2019, once most of the costs linked to the restructuring were already on the books. Operating income grew 10% that year, and operating cash flow grew nearly 40%. Then the pandemic took hold, disrupting operations and obscuring the fiscal success of Coke's plan.

With the fog of COVID-19 fading, however, there's enough visibility for analysts to call for 11% revenue growth this year, paired with similar per-share earnings growth. That's more than enough to keep funding the company's dividend, and maybe even accelerate its dividend growth.

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Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$65.38 (-0.88%) $0.58
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$49.13 (0.18%) $0.09
Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
$439.95 (0.55%) $2.40
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$174.25 (-0.69%) $-1.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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