U.S. stocks are experiencing a rather volatile period. Despite multiple optimistic forecasts for the S&P 500 heading into 2025, the benchmark index is down 3.6% year to date as of this writing. High-performing tech stocks, especially those at the forefront of the artificial intelligence (AI) revolution, have been struggling considerably over the first quarter of the year.
What's an investor to do in uncertain times? In good times and bad, dividend stocks can serve as a stabilizing element for your portfolio. Regardless of broader market performance, high-quality dividend payers can continue delivering regular distributions to shareholders, helping to alleviate the concern that comes with uncertainty.
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Here are two high-quality dividend stocks that investors can rely on in volatile markets.
Snack and beverage giant delivers consistent dividend growth
PepsiCo (NASDAQ:PEP) is a dividend investor's dream, with its powerful combination of yield and growth. The company pays a generous 3.7% dividend yield while trading at just 17.5 times forward earnings, a notable discount to the S&P 500's 19.7 multiple.
What truly sets PepsiCo apart is its remarkable consistency. The company has raised its dividend for 53 consecutive years, with its five-year dividend growth rate hitting a stellar 7.2% (6% is generally considered an "elite" growth rate). PepsiCo's blistering dividend growth rate means investors aren't just collecting a static income stream but rather one that consistently outpaces inflation.
PepsiCo's balanced portfolio spanning both beverages and snacks provides a buffer against shifting consumer preferences. While competitors might excel in either beverages or food products, PepsiCo's broad diversification creates multiple growth avenues and helps insulate the business from category-specific challenges.
This diversification has helped PepsiCo maintain its impressive dividend growth streak through multiple recessions. So despite its elevated 76.7% payout ratio, the company's stable cash flows from must-have consumer products provide plenty of cushion for both dividends and essential investments.
PepsiCo's robust global distribution network ensures that its products maintain dominant shelf positions worldwide, creating a powerful competitive moat. Recent strategic acquisitions have also strengthened its position in high-growth segments, ensuring PepsiCo remains relevant as consumer preferences evolve.
The bottom line? For income-focused investors seeking both current yield and future growth, PepsiCo offers a compelling combination few blue-chip stocks can match.
Property empire disguised as a burger business
Most investors think of McDonald's (NYSE:MCD) as a fast-food restaurant chain. The reality? McDonald's is one of the world's largest real estate companies that happens to sell burgers. This unique business model explains why smart dividend investors are willing to pay a premium 24.8 times forward earnings -- well above the S&P 500's 19.7 multiple.
While the 2.3% current yield might seem modest at first glance, the company's dividend firepower becomes evident when you look beneath the surface. The company has turbocharged its payouts at a 7.4% annual rate over the past five years, meaning your yield on original investment nearly doubles within a decade if this trend continues.
The secret to the company's dividend durability lies in its unconventional approach to the restaurant business. McDonald's owns roughly 70% of the buildings housing its restaurants while franchisees handle daily operations. This savvy real estate strategy creates a remarkably stable income stream for shareholders.
After all, franchisees must pay their rent regardless of how burger sales perform in any given month. This revenue stability explains the moderate 59.5% payout ratio and an impressive 48 consecutive year streak of raising its dividend.
What's the key takeaway? McDonald's represents the rare combination of growth potential and bedrock stability for dividend investors. The brand continues expanding globally while its technology investments keep the company relevant to younger consumers. Few companies can match its unique ability to deliver both income security and meaningful growth in a single investment.
Should you invest $1,000 in PepsiCo right now?
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George Budwell has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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