If the broad market's steep valuation and the economic backdrop have you leery of buying any new growth stocks, you're not alone. It feels like the latest round of growth stock mania has nearly run its course. It's time for something else to have its day in the sun.
That "something else" is of course value stocks, and arguably dividend stocks in particular, generating income while you wait for the next seismic shift in the stock market's underpinnings.
Here are three dividend payers that just might get you started on any such adjustment to your portfolio's allocation.
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PepsiCo
Most of the time Coca-Cola is the go-to dividend name within the beverage space, not to mention one of the preferred dividend payers within the entire consumer staples sector. And if you currently own a piece of Coca-Cola, you're hardly doomed.
If you've got the choice, however, PepsiCo (PEP +1.28%) is your better bet right now.
Most investors don't seem to agree with this assessment. While Coke's stock recently reached a record high, PepsiCo shares continue to fall from their 2023 peak.
NASDAQ: PEP
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Blame its product mix, mostly. Whereas Coca-Cola is only a beverage company, PepsiCo also owns Frito-Lay snack chips as well as Quaker Oats. Both categories have struggled under the weight of steep inflation, as both categories are more difficult to cost-effectively adapt than beverages. Consumers also continue to become more health-conscious about what they eat, increasingly steering clear of snack chips as a result.
Neither challenge is insurmountable, however. In fact, both are quite cyclical, with a recovery possibly around the corner. Frito-Lay's recently introduced "Simply" Doritos, for example, are made with whole grains and no artificial colors or flavors. The company's newer PopCorners chips are also baked rather than fried, and in July PepsiCo launched the world's first-ever prebiotic cola. These new products aren't producing monumental fiscal results just yet. Give them time, though.
In the meantime you can step into PepsiCo shares while they're yielding 3.9%, largely thanks to a lack of patience that caused too many short-term bears to overshoot their target. You just want to be in before they recognize and then correct their mistake.
PepsiCo's yield, by the way, is based on a dividend that's been raised for 53 consecutive years.
Enterprise Products Partners
Pepsi and Frito-Lay may be household names, but Enterprise Products Partners (EPD +0.03%) certainly isn't. There's a pretty good chance, however, that your household regularly benefits from the service it provides. See, Enterprise Products Partners operates a major network of oil and gas pipelines and storage facilities, using them to produce $56 billion worth of revenue last year, and nearly $6 billion in operating income.
NYSE: EPD
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Given the apparent longevity of fossil fuels versus the ongoing proliferation of cleaner renewable energy, this doesn't necessarily seem like the best possible bet. Just don't lose perspective on the matter. Although renewables are the obvious future, that future is much further down the road than most people might believe. Goldman Sachs recently suggested that global consumption of oil will continue to grow until 2040, and even then will only gradually taper off for the next several decades. Separately but simultaneously, oil giant Exxon-Mobil predicts the planet will be consuming more crude oil in 2050 than it is today.
This bodes well for pipeline owners/operators like Enterprise Products Partners, which charges the same basic per-barrel or per-cubic-foot fee for the use of its network regardless of the cost of the gas or oil being pushed through it. Think of it as a tollbooth, which makes it ideally suited to support sustained dividends even if there's not a ton of capital gains in the cards here. You'd be plugging in while its forward-looking yield stands at a solid 6.7%.
Ares Capital
Finally, add Ares Capital (ARCC +0.71%) to your list of dividend stocks to buy if you've got a few thousand bucks you're looking to commit to an income investment. You'd be hard-pressed to find better than its forward-looking dividend yield of 9.7%.
That seems a little too good to be true. Just rest assured that there is something of a catch. That is, Ares may or may not raise its dividend in any given year. It hasn't upped its per-share payout since 2023, for instance, after lowering it just a bit in pandemic-crimped 2020.
With such a big yield, though, occasionally stifled dividend growth may still be well worth it.
Ares Capital is a business development company. That just means it provides capital to young companies that may not be ready to go public, but might not qualify for a conventional business loan. This capital can be provided in exchange for equity in a company, although more often than not it comes in the form of a loan. As of the latest look Ares is financially backing 587 companies worth an aggregated total of $29 billion. Most of the interest they pay on the money borrowed from Ares Capital is passed along to ARCC shares.
NASDAQ: ARCC
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There's not necessarily a great deal of growth potential with this business model, although there can be some. The thing is, it doesn't entirely matter -- this ticker's annualized dividend yield very nearly matches the stock market's average annual long-term gain, and it provides income much more consistently than the market dishes out gains.
Perhaps more important to interested investors, a stake in Ares adds exposure to an increasingly attractive type of investment. That's private equity, or in this case, private credit. As the equity market becomes more volatile as well as less dependable, private (and more curated) investments like those Ares selects offer the sort of predictability that investors want.
That being said, there may actually be some decent capital gains waiting here. JPMorgan predicts the private credit market itself could grow from $12 trillion now to $20 trillion within a decade. Ares Capital is well-positioned to win at least a share of this growth.
