3 High-Yielding Dividend Stocks That Could Beat the Market in 2023

Dividend stocks can be a safe place to park your money amid a downturn in the markets. These investments tend to be more stable options than growth stocks and provide you with a regular cash payout that helps offset your portfolio's losses in a bear market.

Three stocks that not only provide better yields than the S&P 500 average (1.7%), but that could rise in value next year and continue to outperform are Johnson & Johnson (JNJ 0.67%), PepsiCo (PEP 1.65%), and Village Super Market (VLGEA -0.59%). Let's find out a bit more about these three high-yielding dividend stocks that could beat the market in 2023.

1. Johnson & Johnson

Healthcare giant Johnson & Johnson has a tremendous track record as a top dividend stock. It is a Dividend King, having raised its payouts annually for 60 consecutive years.

At 2.6%, the dividend yield doesn't look all that high. But over time, J&J's payouts are a safe bet to continue rising given the company's formidable operations; over the trailing 12 months, J&J's free cash flow totaled $17.7 billion, which is 54% higher than the $11.5 billion it paid out in dividends during that time frame.

This year, share prices of the healthcare company are up just 3% (which is better than the comparable S&P's decline of 17%), but 2023 could be an even better year for the stock. That's because Johnson & Johnson is transitioning more into a growth stock with the spin-off of its consumer health business sometime next year. And the company has been exploring acquisitions of late, including an announcement last month that it would buy heart pump maker Abiomed for $16.6 billion. Stronger growth prospects could help inject some stronger returns into the healthcare stock next year.

At 24 times earnings, Johnson & Johnson's stock is trading a touch higher than the healthcare average of 23. But with the company focused on growth while still generating strong free cash flow, it could soon command a better premium, making it likely to continue outperforming the markets next year.

2. PepsiCo

PepsiCo is another Dividend King to make this list, as it has increased its dividend for 50 straight years. It announced its latest rate hike in November. At 2.5%, the yield is similar to Johnson & Johnson's.

PepsiCo generated free cash flow of $6.4 billion over the trailing 12 months, leaving a bit of a buffer over the less than $6.1 billion it paid out in dividends. Although that doesn't leave a whole lot of wiggle room, this also isn't a company that's likely to be making significant acquisitions -- instead, it's focusing on its core operations amid a return to normalcy in the economy.

The soft drink and food company proved it's resilient, with net sales of $22 billion for the quarter ending Sept. 3, rising 8.8% year over year. What's impressive is that all of its segments generated positive year-over-year growth.

Shares of PepsiCo are up over 5% this year as investors flocked to this safe investment. And there's little reason to doubt that the company won't continue its stellar results in 2023 and remain a market-beating stock to own. At 26 times earnings, it isn't a cheap buy -- but PepsiCo arguably warrants a bit of a premium given the stability that it offers investors, plus its fantastic dividend.

3. Village Super Market

One of my favorite dividend stocks is Village Super Market. It's a modest, underrated stock to own, as its market cap is around $350 million and it isn't nearly as popular as the other stocks on this list. Although it hasn't been raising its dividend payments for decades, this low-volatility stock pays an impressive yield of 4.2%. Its free cash flow over the past 12 months totaled $36.4 million, which is nearly three times what it has paid out in dividends ($13 million).

Village Super Market, as the name suggests, operates grocery store chains, particularly on the East Coast. Grocery stores have been safe investments this year -- while inflation made consumers make difficult choices about their buying decisions, groceries will always be essentials, making these types of businesses fairly defensive investments to own, even in a downturn.

Earlier this month the company released its fiscal 2023 first-quarter earnings for the period ending Oct. 29. Same-store sales rose 4.3% during the period, primarily due to rising prices. However, the company has done an excellent job of keeping its costs manageable, and the increase in sales helped result in a stronger bottom line, with net income for the quarter totaling $11.1 million and rising 51% from the prior-year period.

Village Super Market's stock trades at a modest 13 times earnings and is a solid value buy for investors. Up just 3% this year, this is a stock that has quietly been beating the market in 2022, and it could do even better next year if it continues posting solid profit growth.