Investing in top consumer brands with a history of increasing dividends can be very rewarding over the long term. Reinvesting the dividends from high-yielding stocks can eventually lead to a windfall of passive income for retirement.
Starbucks (SBUX 0.83%) and PepsiCo (PEP 0.28%) are two stocks offering attractive yields right now, just as their businesses are starting to show an uptick in financial results. Here's more on why these consumer powerhouses are timely buys this month.
Image source: Getty Images.
1. Starbucks
Starbucks is starting to turn the corner after a challenging few years. The company is seeing an uptick in transactions and average ticket, which is driving stronger sales growth. Starbucks has paid a growing dividend for over 15 years, making it a solid dividend stock to buy as the business improves.
The current quarterly dividend is $0.62, or $2.48 per year. This is pushing the limits of what the company can sustainably pay out, given Starbucks' full-year earnings guidance of $2.15 to $2.40 per share. But this is transitional, as CEO Brian Niccol (former CEO of Chipotle Mexican Grill) executes its turnaround strategy.
NASDAQ: SBUX
Key Data Points
The company's "Back to Starbucks" plan is starting to show noticeable results, with global comparable store sales up 4% year over year last quarter. Management credited this performance to marketing, menu innovation (including its new protein offerings), and store remodels.
The stock is up 18% year to date and still offering an above-average forward dividend yield of 2.51%. That is an attractive yield, considering Starbucks' history of increasing the dividend and the likelihood of further increases as Niccol implements improvements to the store experience and menu to strengthen sales.
2. PepsiCo
PepsiCo has a powerhouse brand lineup in snacks and beverages that lays the foundation for solid dividend growth. The company has generated consistent revenue and free cash flow over the past five years, despite higher inflation and a pandemic. Over that time, revenue increased 31% with free cash flow up 19%, reaching $7.6 billion on a trailing-12-month basis. These cash flows funded spending on product and packaging innovation, while supporting a growing dividend.
NASDAQ: PEP
Key Data Points
PepsiCo has paid a dividend for 60 years, with the current quarterly payment at $1.4225, or $5.69 annualized. However, the company announced it will increase its full-year dividend by 4% in 2026 to $5.92, bringing the forward dividend yield to 3.52%.
The company has paid out virtually all of its free cash flow in dividends over the past three years. While this is high, PepsiCo's consistent operating history and growth prospects point to further increases.
PepsiCo reported improved sales and earnings in the fourth quarter. The company's full-year adjusted earnings were flat at $8.14 per share, but increased 11% year over year in the fourth quarter. Management is targeting productivity savings in 2026 that it expects will sustain this momentum.
Likewise, Wall Street analysts are starting to raise their long-term earnings growth forecasts, now expecting 6% annualized earnings growth, which should mirror free cash flow.
Overall, PepsiCo's strong brand portfolio and financial strength make it a solid dividend investment.
