The first half of 2026 belonged to artificial intelligence. The second half, so far, has belonged to almost everything else.
In the opening stretch of July, technology has been the market's worst-performing sector. Meanwhile, cash has flowed into the corners investors ignored all year: energy, financials, healthcare, and consumer staples. A soft June jobs report, which showed the economy adding just 57,000 jobs, cooled bets on a Federal Reserve rate hike and gave the rotation a further push.
For income investors, I think a rotation into defensive, dividend-paying stocks is worth a closer look. Three names in particular stand out.
Each is a Dividend King with at least half a century of consecutive annual increases, and each sits at a very different point in this trade. Here's a look at Coca-Cola, Johnson & Johnson, and PepsiCo.
Image source: Getty Images.
1. Coca-Cola: quality, already rewarded
Coca-Cola (KO +0.36%) is what the rotation looks like when it works. The beverage giant trades near an all-time high, and the business has earned it. First-quarter organic revenue rose 10% year over year, a strong result for a company this size and this old.
The dividend, of course, is about as secure as dividends get. Coca-Cola has raised its payout for 64 straight years, and the current $2.12 annual dividend uses up only about two-thirds of earnings.
NYSE: KO
Key Data Points
The one drawback is the price -- at roughly 25 times forward earnings, with a 2.5% yield, Coca-Cola is arguably priced like the defensive stalwart it is. You're buying quality here, but you're not buying it cheap.
2. Johnson & Johnson: the healthcare anchor
Johnson & Johnson (JNJ +1.53%) offers a similar kind of durability from a different sector. The healthcare giant just raised its dividend for the 64th consecutive year, matching Coca-Cola for the longest streak of this trio.
Indeed, its first-quarter results gave the increase plenty of cover. Revenue rose about 10% year over year, adjusted earnings per share came to $2.70, and management lifted its full-year outlook to about $11.55 in adjusted earnings per share, helped by strong demand for cancer drug Darzalex and immunology treatment Tremfya.
NYSE: JNJ
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At about 22 times forward earnings and a 2.1% yield, Johnson & Johnson sits between its two peers here on valuation, though its yield is the lowest of the three. Its dividend consumes less than half of adjusted earnings, so there's ample room for more increases. Investors will get a fresh read soon, too: the company reports second-quarter results this week, on July 15.
3. PepsiCo: the cheap, out-of-favor one
If Coca-Cola is the rotation's winner, PepsiCo (PEP +0.74%) is the name it has passed by so far. The snacks and beverages maker trades near a 52-week low.
Its second-quarter report on Thursday explains part of why. Organic revenue grew just 2.4%, in line with the sluggish low-single-digit pace of recent quarters, and volume in its North American beverage business fell 4%.
But there's another side to this. PepsiCo affirmed its full-year outlook, still expects core constant currency earnings per share to grow 4% to 6% for the year, and just raised its dividend for the 54th year running.
NASDAQ: PEP
Key Data Points
After the sell-off, the stock now yields about 4.3% -- comfortably the highest of the three -- at roughly 16 times forward earnings, easily the cheapest. For investors who think the rotation into unloved value has further to run, that's arguably the most direct way to play it in this group.
The better way to play the rotation?
So which of these three fits the moment best? It depends on what an investor is after.
The highest quality, for those willing to pay up, is Coca-Cola. The steadiest, and the one giving a fresh read on its business next, on July 15, is Johnson & Johnson. And the best value, for anyone willing to sit through some near-term softness, is PepsiCo.
Personally, in a rotation like this, I lean toward the cheapest, most out-of-favor name, which points to PepsiCo. Its U.S. business isn't at its strongest right now, but a 4.3% yield backed by 54 years of increases pays investors well to be patient.
Of course, none of these is a bargain in absolute terms. And a market that turns back toward growth could leave defensive payers behind just as fast as it found them. But if the rotation into value has staying power, these three sit squarely in its path.
