We recently published a list of 10 Best Consumer Staples Dividend Stocks To Invest In. In this article, we are going to take a look at where PepsiCo, Inc. (NASDAQ:PEP) stands against other best consumer staples dividend stocks to invest in.
The consumer staples sector delivered a total return of 12.3% in 2024, a solid performance for a typically stable industry. However, without the substantial gains from two of its largest components, the sector’s overall returns would have been significantly lower. Known for its defensive nature, this sector appeals to risk-averse investors seeking steady income. While consumers might scale back on household essentials during economic downturns, the decline is generally less pronounced compared to discretionary spending on entertainment, travel, and similar categories. That said, many companies in this space are not expected to grow their earnings as rapidly as the broader market, which could result in underperformance during periods of strong market growth.
The consumer staples sector consists of companies that produce essential goods such as packaged foods, toothpaste, and dish detergent. The sector is home to many well-established companies that consistently pay dividends, further reinforcing its defensive nature. However, this defensive positioning remained a headwind rather than an advantage for most of 2024, following the sector’s decline in popularity in 2023. Investors largely steered away from defensive stocks, instead favoring a select group of mega-cap growth companies, particularly those linked to artificial intelligence. Moreover, persistently high interest rates put further pressure on dividend-paying stocks, as they are often seen as alternatives to bonds. Concerns over the potential impact of GLP-1 weight-loss drugs on food and beverage consumption also added to the sector’s challenges.
Amid a broader increase in short interest across equities, consumer staples stocks saw a rare shift in sentiment among short sellers during the summer months. According to the latest data from S&P Global Market Intelligence, short interest in the sector declined from 4.16% at the end of May to 3.87% by the end of August. Notably, the consumer staples was the only one among the 11 stock sectors to experience a drop in short interest over that three-month period.
Even so, the sector did not go unnoticed in 2024, as investors shifted their focus to it in August amid growing recession concerns and heightened market volatility. A report from Business Insider noted that the sector climbed approximately 4.1% that month, significantly outperforming the broader market, which saw a gain of just over 1% during the same period. Analysts at Bank of America observed that US consumers have been adjusting to a weaker labor market, dwindling pandemic-era savings, and elevated interest rates. This shift is evident in various ways, including the stronger performance of consumer staples stocks compared to their discretionary counterparts.
As 2025 approaches, analysts expect the consumer staples sector to regain stability amid a generally steady economic environment and a consumer landscape that, while under some pressure, is not facing severe strain. A report from Fidelity notes that overall consumer demand remains firm, household finances are in good shape, employment levels are strong, and real wage growth is holding steady. With the Federal Reserve starting to lower interest rates, the sector’s prospects appear favorable. In view of this, we will take a look at some of the best dividend stocks from the consumer staples sector.
Our Methodology:
For this list, we identified dividend-paying stocks from the broader market’s Consumer Staples Index with strong dividend growth track records. After that, we sorted these dividend stocks using Insider Monkey’s proprietary hedge fund sentiment data as of Q4 2024, which means that these stocks are the most popular dividend stocks among the elite hedge funds. The list is ranked in ascending order of the number of hedge funds having stakes in the companies.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is PepsiCo, Inc. (PEP) the Best Consumer Staples Dividend Stock To Invest In?
A close up of a glass of a refreshing carbonated beverage illustrating the company's different beverages.
PepsiCo, Inc. (NASDAQ:PEP) is a leading food and beverage company that produces a wide range of popular products. The company maintained steady earnings in FY24, reporting revenue of $91.8 billion, slightly up from $91.4 billion in the previous year. Operating profit rose to $12.8 billion, compared to $11.9 billion in FY23, while net income also increased to $9.6 billion. Looking ahead to 2025, the company anticipates low-single-digit growth in organic revenue and mid-single-digit growth in core constant currency EPS.
Despite being viewed as a defensive stock with slower growth, PepsiCo, Inc. (NASDAQ:PEP) has steadily increased its revenue and profit by prioritizing expansion and acquisitions. Its resilience, coupled with effective management of inflationary pressures, makes it a dependable investment during economic downturns. However, in 2024, the stock came under considerable pressure as investors favored higher-growth opportunities. Additional challenges arose from external factors, including deglobalization and concerns surrounding the adoption of GLP-1 drugs.
PepsiCo, Inc. (NASDAQ:PEP) declared a 5% hike in its annual dividend to $5.69 per share on February 3. Through this increase, the company stretched its dividend growth streak to 53 years, which makes it one of the best dividend stocks on our list. The stock has a dividend yield of 3.52%, as of February 24. In FY24, the company generated an operating cash flow of $12.5 billion. In FY25, the company expects to return approximately $7.6 billion to shareholders through dividends.
Overall, PEP ranks 2nd on our list of best consumer staples dividend stocks to invest in. While we acknowledge the potential for PEP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PEP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
