Stock market sell-offs can be challenging times for investors. Market volatility can make it tough to make new investments and keep the ones you already have due to the fear that they could lose value.
However, I see sell-offs as opportunities to buy high-quality companies at lower valuations. I especially like to purchase top-notch dividend stocks during downturns, because dividend yields move in the opposite direction as stock prices. Because of that, I can lock in an even better income stream.
One dividend stock I've been buying during the current market sell-off is PepsiCo (PEP 0.16%). The beverage and snacking giant has an elite record of paying dividends, which I think will continue. That's why I plan to continue buying shares if they keep heading lower.
NASDAQ: PEP
Key Data Points
A fantastic dividend stock
PepsiCo is as good as it gets when it comes to paying dividends. Earlier this year, the food and drinks company announced it would increase its dividend by 5% for the upcoming June payment. That will extend its dividend growth streak to 53 consecutive years. It keeps PepsiCo in the elite group of Dividend Kings -- companies with 50 or more years of annual dividend hikes.
The company's new annualized dividend payment will be $5.69 per share. With PepsiCo's share price slumping (it was recently below $142 per share), it now has a forward dividend yield of 4%. That's much higher than the S&P 500 (^GSPC 1.81%), which has a 1.5% dividend yield. It's also well above the company's historical average over the past decade:
PEP Dividend Yield data by YCharts
The company's high-yielding dividend is on a rock-solid foundation. PepsiCo produces lots of cash ($12.7 billion last year), which easily covers its dividend outlay ($7.6 billion last year). The company also has a strong balance sheet with A-rated credit and almost $9.3 billion of cash, cash equivalents, and short-term investments.
More growth ahead
PepsiCo expects to continue growing its revenue and earnings in the future, which should support continued dividend increases. The company's current financial outlook is that it will deliver low-single-digit organic revenue growth and mid-single-digit earnings per share growth this year. Meanwhile, its long-term targets are for 4% to 6% organic revenue growth and high-single-digit earnings per share growth. The company is investing heavily in product innovation, manufacturing capacity, and automation to grow its sales and improve its profit margins.
The company provided this outlook before the Trump administration announced its "reciprocal tariffs," which could have a major impact on the global economy. Tariffs could impact PepsiCo, especially regarding products like coffee and fruit. However, it has less exposure than many other companies. Further, the company will likely ask the administration for targeted exemptions from those items, which it might receive because that would reduce the impact of food inflation on consumers.
Meanwhile, PepsiCo has the financial strength to make acquisitions to further bolster its growth profile. The company recently agreed to buy low-calorie soda maker Poppi for $1.7 billion. It also closed its $1.2 billion acquisition of Siete Foods and the remaining 50% interest in Sabra and Obela it didn't already own. These deals expanded its product portfolio in the fast-growing healthier food and drinks sectors.
A high-quality, high-yielding dividend stock
PepsiCo is a very attractive dividend stock these days. With its stock price falling, it currently offers a well-above-average dividend yield. That healthy payout should continue growing in the future. Because of that, it should supply me with lots of passive income. That's why I've been buying shares as they've sold off, and plan to continue adding to my position if the stock keeps falling.
