When a given stock enters a bear market, some risk-tolerant investors often feel they have the opportunity to buy on sale. This is especially true for dividend stocks since a lower buy price translates into a higher-percentage dividend yield on one’s investment.

The only question for investors is which stocks may serve as an opportunity for yield under current conditions. While it may be difficult to accurately forecast the future with any precision, either adding shares (or initiating new positions) should pay off in terms of dividend income and eventual stock growth.

Realty Income

Realty Income (O 0.60%) offers both hope and frustration to dividend investors.

This stock, which specializes in single-tenant commercial properties, achieved its all-time high nearly five years ago. As of the time of this writing, its current price is 37% below its peak in February 2020. The pandemic and the massive increase in interest rates in the early 2020s likely soured investors on this real estate investment trust (REIT).

However, investors who bought more recently have derived a key benefit from this stock--a high dividend yield. That dividend return of 6.1% is nearly five times the S&P 500 average of around 1.25%. Additionally, it bills itself as the “monthly dividend company” and has lived up to that name. It pays shareholders every month and has increased payouts at least once annually since it began trading as a REIT in 1994.

Moreover, investors do not seem to appreciate the growth it generated amid higher interest rates. Thanks to acquisition and in-house property development, it now owns about 15,500 properties at the end of the third quarter of 2024. At the stock's peak in Q1 2020, it owned approximately 6,500 properties.

Not surprisingly, that growth boosted its financial performance. Quarterly revenue has risen from $414 million to over $1.3 billion, and the company’s funds from operations (FFO) income, a measure of a REIT’s free cash flow, surged to $864 million from $277 million. Hence, in addition to the massive dividend, investors are buying its enormous property portfolio that generates more than triple the revenue and more than double the FFO income.

Admittedly, FFO income would likely improve with lower interest rates, and the failure of rate cuts to lower market interest rates is a point of frustration. Nonetheless, with the growth of property assets, dividends, and FFO income Realty Income has achieved in a higher-rate environment, it is probably time to stop punishing Realty Income stock over interest rates.

PepsiCo

PepsiCo (PEP -0.39%) is another example of temporary challenges boosting the dividend yield.

Despite the focus on its flagship beverage, Pepsi, it also owns beverages such as Mountain Dew and Gatorade. It also manages a massive food business with its ownership of Frito-Lay and Quaker Foods.

While it has served as a source of steady growth, price increases have begun to catch up to the company. Also, the incoming Trump Administration could force PepsiCo to change the ingredients on many of its products or, possibly discontinue some offerings. Consequently, the stock has fallen about 27% from its peak.

However, PepsiCo is working to win back consumers. Rather than cutting prices, it increased the size of its offerings, adding 20% more product to bags of Tostitos and Ruffles. It also reduced the variety packs to 10 count (from 18 and 24-count) to drive more sales.

Also, temporary slowdowns are unlikely to derail the 52-year history of payout hikes for this Dividend King. With its lower stock price, the yield is up to 3.8%, around triple the S&P 500 average.

Indeed, its financials reflect its recent struggles. In the third quarter of 2024, its revenue of $23 billion fell less than 1% yearly. That is well under the 7% annual growth in Q3 2023. Also, in Q3 2024, its net income of $2.9 billion dropped 5% yearly, reversing the 14% increase in the year-ago quarter.

Nonetheless, the stock may have overreacted to the sluggish performance. While its financials have pulled back slightly, the level of decline points to a minor slowdown rather than a collapse. Also, thanks to the drop in the stock price, its P/E ratio has fallen to 21, the lowest level since the market crash in early 2020.

Ultimately, such conditions could make PepsiCo a more appealing choice for income investors. A high-yielding, rising payout, and a low valuation make it look increasingly like a buy for income investors.