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Dividends have accounted for the lion's share of returns earned by stock investors over the past several decades. Back in 1960, 85% of total returns earned by stock investors came from dividends. Standard & Poor's 500 This can be attributed to reinvestment of dividends and the power of compound interest.
However, not all dividend payers are in the same category. A recent report from Hartford Funds found that companies that Payment rates Companies with a dividend yield of less than 75% tend to perform better than similar companies that pay dividends at higher rates.
The reason is simple: A higher ratio puts the dividend at risk of being cut or stopped altogether, moves that are usually followed by a sharp drop in the stock price.
Which dividend stocks stand out as the best buys in the market today? PepsiCo (NASDAQ: PEP) and Black Rock (NYSE: BLK) These are two of the best dividend stocks with a yield of less than 75%, above-average returns, and strong fundamentals. Let’s dive into why these two of the best dividend stocks deserve a place in your portfolio.
PepsiCo: A Giant in the Snack and Beverage Industry
PepsiCo is a global powerhouse in the snacks and beverage industries, dominating the $230 billion global snacks market with a 23% market share. With iconic brands such as Lays, Cheetos and Doritos, PepsiCo maintains its leadership in snacks while being the world’s second-largest beverage provider after coca cola.
For dividend-focused investors, PepsiCo offers an attractive yield of 3.08% and has shown consistent growth over five years. Earnings growth rate 5.8%. While the company's dividend payout ratio of 74.7% is high, its expected earnings growth of 4.3% in 2025 should help lower its dividend payout ratio.
PepsiCo's strength lies in its diverse portfolio of brands in the still and still beverage categories, as well as its in-house control of bottling operations. The company maintains a strong position as the No. 2 market leader in the still carbonated beverage market, with carbonated beverages accounting for nearly half of PepsiCo's total beverage volume.
PepsiCo’s investment appeal is enhanced by its high institutional ownership of 77.6% and reasonable valuation, with its shares trading at 18.7 times 2026 earnings. This combination of strong institutional support, value, market leadership, and consistent earnings growth makes it an attractive option for investors seeking income and capital appreciation.
BlackRock: The World's Largest Asset Manager
BlackRock is the world’s largest asset manager, with $10.6 trillion in assets under management at the end of June 2024 and clients in more than 100 countries. BlackRock’s product diversity and greater focus in the institutional channel have traditionally provided it with a more stable set of assets than its industry peers.
BlackRock's well-diversified product mix makes it relatively conservative about shifts between asset classes and investment strategies, limiting the impact that market volatility or withdrawals from individual asset classes or investment styles can have on its assets under management.
For dividend hunters, BlackRock offers a 2.31% yield. Furthermore, the company has a moderate payout ratio of 50.1%, providing plenty of room for future increases. Best of all, BlackRock has demonstrated its commitment to shareholder returns with an impressive five-year dividend growth rate of 7%.
Looking ahead, BlackRock appears poised for growth. Analysts expect revenue to grow 11.5% by 2025. Despite this double-digit growth trajectory, shares currently trade at 16.5 times 2026 earnings, suggesting an attractive entry point for long-term investors.
Like PepsiCo, BlackRock has high institutional ownership of 81%, a testament to its perceived quality among professional investors.
Time to buy?
Both PepsiCo and BlackRock offer compelling evidence for dividend-focused investors. These industry leaders have sustainable payout ratios, consistent earnings growth records, and strong market positions that should help them weather economic storms.
Moreover, both companies have proven their ability to grow their earnings at respectable rates over the past five years. As a result, both PepsiCo and BlackRock deserve consideration for investors looking for a combination of current income and long-term growth potential.
Should you invest $1,000 in PepsiCo now?
Before you buy PepsiCo stock, keep the following in mind:
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George Pudwell He has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has Disclosure Policy.
2 Amazing Return Stocks Worth Investing In Now Originally posted by The Motley Fool
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