In 1972, former U.S. President Richard Nixon was reelected to the nation's highest office. There have been 13 presidential elections since then as well as nine presidents, a testament to just how much time has passed. But even though this is a long time period, beverage and snacks company PepsiCo (PEP +0.29%) is about to do something that it's been doing every single year since then.
Pepsi already announced that it will raise its quarterly dividend payment by 5% in June. The company has been paying a dividend since 1965. But this year will be the 53rd straight year that it not only paid the dividend but also raised the dividend.
Once a company has increased its dividend for 50 consecutive years, it's known as a Dividend King. And as a Dividend King, few companies have longer streaks than PepsiCo. This makes it one of the best dividend stocks in the world, historically speaking.
NASDAQ: PEP
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However, Pepsi stock is down more than 30% from its all-time high. Over the last 10 years, investors made more than twice as much money by investing in an S&P 500 (^GSPC +0.81%) index fund than they would have by investing in PepsiCo stock directly.
With everything going on in the global economy, investors aren't overly excited about Pepsi's prospects at the moment. There's validity to those concerns. That said, I believe that dividend investors might need to give PepsiCo stock a careful look right now.
Could PepsiCo be a good dividend investment?
With any dividend investment, the main question is: Will this company keep paying a higher and higher dividend in the future?
The first consideration is whether a company is committed to its dividend. Some choose to start paying one and later decide to invest that money elsewhere. But in PepsiCo's case, its dividend is clearly a priority after a streak of more than five decades. That's very unlikely to change.
The second consideration is whether a company has the means to keep growing its dividend. Businesses that stumble -- whether through economic changes or their own missteps -- often need to cut their dividends to survive. I believe some investors question how much PepsiCo will struggle to pay its dividend in the near future.
The reason investors could question this at all for PepsiCo is due to uncertainty in the global economy. Consider that during its fiscal 2024 (which ended on Dec. 28), PepsiCo generated 60% of its revenue in North America. This means that nearly half of this business takes place outside the United States. As tariffs going back and forth between nations, it complicates financial forecasts.
Moreover, PepsiCo sources its raw materials from multiple countries. So not only is there uncertainty regarding sales, there's also uncertainty with its cost structure.
If you need further proof that dividend investors are nervous about this situation, consider PepsiCo's dividend yield. This represents how much an investor gets paid for their investment -- a 1% yield means $1 in annual dividend income per $100 invested. In PepsiCo's case, the yield is currently over 4%, which is the highest it's ever been in the roughly 40 years of data tracked by YCharts.
PEP Dividend Yield data by YCharts.
At the risk of oversimplifying things, when the yield is high, it represents low investor demand. When the yield is low, it represents high demand. With PepsiCo's dividend yield at an all-time high, investors have never been more disinterested, which may have to do with the economic uncertainty.
Personally, I don't think that investors are giving PepsiCo enough credit. In contrast to other well-known beverage companies, PepsiCo has a huge portfolio of brands that extend far beyond beverages, giving it greater diversification and stability.
Furthermore, in a sputtering economy, it's often the bigger companies that get stronger. PepsiCo has the means to acquire up-and-coming brands, as it's proved with its recent acquisition of prebiotic soda company Poppi. And it could pad its portfolio further, depending on how many small companies struggle with weak consumer spending.
Finally, PepsiCo plans to spend $7.6 billion for its dividend in 2025. That's significant. But keeping this in perspective, the company had $12.5 billion in net cash from operations in 2024. Its cash flow will be challenged in 2025. But it would have to drop significantly before the dividend was in trouble.
PepsiCo's business can endure hardship and it's poised for growth in future years through acquisitions and growth with certain brands in certain markets. Even if the business is challenged in the near term, I believe it will continue to do well in the long term, and I don't think future dividend increases are off the table.
For these reasons, investors interested in stable dividend income might consider PepsiCo stock, with the yield already over 4%.
