In times of bull-market excess, the best move a contrarian investor can make is to buy well-paying dividend stocks that are out of the investing limelight. Wall Street has its eyes glued to artificial intelligence (AI) and space stocks, while everything else is thrown by the wayside. This creates opportunities for those willing to go against the grain.
Enter PepsiCo (PEP 1.92%) and Lowe's (LOW 1.27%). Both stocks are Dividend Kings -- meaning they have increased their dividends for 50 years -- and trade at discounts to the market today. Here's why both will make solid passive income plays for your portfolio in 2026.
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A rebound in food and drink spending
Fears have hit the food and drink sector because of the rapid growth of weight-loss drugs, which suppress food cravings. PepsiCo -- owner of Pepsi, Frito-Lay, and other food/beverage brands -- has borne the brunt of this headwind after years of consistent global growth driven by volume and price increases.
Revenue growth stalled immediately after weight-loss drugs became popular a few years ago, leaving Pepsi flat-footed. However, the company has begun to pivot its business strategy with some success by improving nutritional quality, lowering portion sizes to align with weight-loss drugs, and focusing on premiumization as snacking or soda consumption becomes more of a deliberate decision instead of a daily habit.
NASDAQ: PEP
Key Data Points
Last quarter, which ended in March, PepsiCo reported 8.5% net revenue growth and 2.6% organic revenue growth, along with an operating margin expanding to 16.5% compared to 14.4% a year prior.
The years of huge volume gains for soda and snack brands worldwide are over. However, Pepsi can sustain its revenue growth through steady price increases, which can be a major profit driver for the sector over the long haul. If a bag of chips goes from $1 to $2 to $4 over 30 years, consumers won't blink, given the low price point.
This is why Pepsi has been able to raise its dividend for 54 straight years. Buying at a 3.6% yield today, this stock can be a passive income stalwart for your portfolio over the next 50 years as well.
Waiting for a housing recovery
A sector perhaps facing even more headwinds than food and drink is housing. Existing-home sales plummeted in the United States due to rising mortgage rates and are now at levels last seen at the bottom of the housing crisis in 2009 and 2010.
One company greatly affected by housing activity is Lowe's, one of the two large home improvement supply companies in the United States, along with Home Depot.
Overall, Lowe's revenue is down by more than 10% from its highs, indicating how stagnant the current housing market is. Comparable-store sales growth bottomed in 2023 and has since begun to recover, recently turning positive in the last three quarters. This shows that Lowe's is growing revenue from existing locations despite the significant headwinds from housing construction.
NYSE: LOW
Key Data Points
When someone buys a home, they are more likely to renovate parts of it, which ties Lowe's to the overall housing market as these DIY projects dry up. Still, eventually, the housing market will normalize, either through lower mortgage interest rates or higher annual wages that make home purchases more affordable for the average American. In turn, this should create a strong tailwind for Lowe's demand in the years ahead.
Lowe's has been a mighty Dividend King and currently pays a dividend yielding 1.95%. It has a lower starting yield than Pepsi, but management is more focused on stock repurchases than on dividends, with shares outstanding down 37% over the last 10 years. This is a nice capital returns combination that should help Lowe's stock produce growing passive income for your portfolio as you wait for a housing turnaround to lift the share price higher.
