Equity markets have dropped this year as President Donald Trump's tariffs have raised fears that the U.S. economy will fall into a recession. U.S. gross domestic product did shrink in the first quarter, and the S&P 500, though it has recovered from its earlier declines this year, is still down by more than 4% so far in 2025 as of May 6, and down by more than 8% from its peak.
However, market pullbacks give investors who are focused on the long term opportunities to pause and investigate companies with strong long-term prospects. It's also comforting to buy dividend-paying stocks, as those regular payouts can help enhance your returns. That's particularly true during uncertain times.
These two companies have increased their payouts annually for more than 50 consecutive years, making them Dividend Kings. Those impressive track records mean they've not only consistently made payouts but increased them even during challenging economic times.
Image source: Getty Images.
1. PepsiCo
PepsiCo (NASDAQ: PEP) sells beverages and foods under well-known brands like Pepsi, Mountain Dew, Gatorade, Cheetos, and Quaker. Still, its sales haven't been immune from the difficult overall economic environment.
Its sales increased by a tepid 1% in the first quarter, after factoring out the impacts of acquisitions, divestitures, and shifting foreign currency exchange rates. That increase was entirely attributable to price increases, which added 3 percentage points to the top line, as lower sales volumes subtracted 2 percentage points.
While no one can predict when the current complex economic headwinds will abate, they undoubtedly will at some point. When consumers return to their normal spending habits, PepsiCo will undoubtedly be one of the beneficiaries. Meanwhile, its management team has done a good job at controlling costs -- adjusted earnings per share grew by 5% in Q1.
In a positive sign, a couple of months ago, the board of directors announced a 5% increase in the quarterly dividend that will be distributed in June. That will extend PepsiCo's streak of payout hikes to 53 straight years -- and with a 78% payout ratio, it can afford those payments.
At the new $5.69 annual rate and its current share price, PepsiCo's stock has a 4.3% dividend yield. That's more than three times the S&P 500's yield of 1.3%.
The stock has fallen by more than 25% over the last year versus a 9.6% gain for the S&P 500. However, for patient investors, this has created a better valuation that creates a buying opportunity. PepsiCo's price-to-earnings (P/E) ratio stands at around 19 compared to 27 a year ago. Meanwhile, the S&P 500 has a P/E ratio of about 27.
2. Target
Target (NYSE: TGT) has grown into a popular shopping destination by offering differentiated merchandise. Many times, you might only find the items at Target.
Its sales have also been impacted by customers paying more for everyday essentials like food. In its fiscal fourth quarter, which ended on Feb. 1, same-store sales (comps) increased just 1.5%.
Positively, people still visited Target's stores and website. That's evidenced by the 2.1% increase in the number of transactions. They spent less on each visit, though, with the average transaction size down by 0.6%.
The company's gross margin contracted from 26.6% to 26.2% due in part to markdowns and higher supply chain costs. Looking ahead, higher tariffs create short-term uncertainty that may raise Target's costs and potentially hurt sales and margins. However, long-term investors should not get discouraged.
After all, the increased traffic shows that people haven't abandoned Target. They're just spending less. When their personal economic situation improves, it seems likely that they'll go back to spending more money at Target.
While waiting for the improvement, Target shareholders can enjoy its 4.6% dividend yield. When the board of directors raised dividends last June, it ran the company's streak of boosts to 53 consecutive years.
The streak doesn't seem like it will get broken anytime soon based on the company's free cash flow (FCF). Last year, the company generated $4.5 billion in FCF and paid out $2 billion in dividends.
The stock has tested investors' patience with a price drop of more than 40% over the last year. However, the share price looks compelling with its trailing P/E falling from 18 to below 11.
That suggests an opportunity to collect dividends and benefit from capital appreciation.
Should you invest $1,000 in PepsiCo right now?
Before you buy stock in PepsiCo, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PepsiCo wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $623,103!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $717,471!*
Now, it’s worth notingStock Advisor’s total average return is909% — a market-crushing outperformance compared to162%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
