Key Points
Dividend King PepsiCo's dividend yield is three times larger than the S&P 500's yield.
Realty Income is a retail landlord with a lofty yield and three decades of dividend growth.
- 10 stocks we like better than Realty Income ›
Dividend investors often get too focused on dividend yield, forgetting that dividend growth is important, too.
Indeed, if your dividends don't keep up with inflation, their buying power will actually shrink over time. A solid combination of yield and proven dividend growth can be had with PepsiCo (NASDAQ: PEP) and Realty Income (NYSE: O).
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PepsiCo is a Dividend King
With more than five decades of dividend increases behind it, PepsiCo is on the highly elite Dividend Kings list. Its 3.3% dividend yield is three times larger than the 1.1% yield on offer from the S&P 500 (SNPINDEX: ^GSPC). That's a great start, but now add in average annualized dividend growth of 7%, and you complete the picture.
The business behind all those dividend stats is equally compelling. PepsiCo is one of the world's largest consumer staples companies, with leading positions in beverages, salty snacks, and packaged food products. It stands toe-to-toe with its competitors in innovation, distribution, and marketing.
Right now, the business is struggling a little bit as it adjusts to changing consumer tastes and increasingly cost-conscious buyers. Given PepsiCo's long and successful history, dividend growth lovers should probably give management the benefit of the doubt.
Realty Income is a bit tangential
Realty Income is the largest net lease real estate investment trust (REIT), with more than 15,500 properties. Roughly 80% of its rents come from single-tenant retail assets. While it isn't exactly a consumer business, since its customers are retailers, its rents are tied directly to consumers.
That said, the big draw here will be the REIT's lofty 4.8% dividend yield. That yield is backed by three decades of annual dividend increases. Dividend growth has averaged around 4% or so over that span, which slightly outpaces the long-term growth rate of inflation over time.
Given the REIT's scale, slow and steady growth in the business and the dividend is likely to be the norm for the foreseeable future. That remains true even as Realty Income expands into new business lines to bolster its growth profile. So you are basically giving up a little dividend growth in exchange for maximizing the income your portfolio generates.
Two solid dividend choices
PepsiCo is clearly the more growth-oriented dividend stock, but Realty Income's larger yield is still very enticing. The best option might actually be to buy both, giving you access to income today and dividend growth for even more income tomorrow.
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Reuben Gregg Brewer has positions in PepsiCo and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
