It’s been quite a year for the S&P500. The index is up 21% since January.
While the strong earnings are getting a lot of attention, not every stock has performed well. PepsiCo (NASDAQ: PEP) has been flat and Alexandria Real Estate Stocks‘ (NYSE: HIS) shares are down 10%. While this may cause hesitation for some investors, the declines provide long-term investors, especially those looking for dividends, with a buying opportunity.
These three have strong companies and investors are receiving dividends in anticipation of a recovery in stock prices. Let’s dig deeper to find out why you should consider adding them to your long-term stock holdings.
1. PepsiCo
PepisiCo produces beverages, snacks and ready-made meals under brands such as Pepsi, Gatorade, Doritos, Quaker Chewy and Rice-A-Roni. These remain popular with consumers and retailers stocking their shelves.
However, recent sales growth has slowed. In the third quarter (ended September 7), adjusted revenue, which excludes items such as currency translations, grew 1.3%. That was due to price increases, which added 3 percentage points, while volume decreased 2. And investors responded by seeing the stock price severely underperform the overall market.
However, that’s probably not because consumers are specifically turning away from PepsiCo’s products. This is evident from other consumer products companies such as McDonald’sand also reports weaker results due to tense consumers. Now that inflationary pressures have subsided, they should return to their normal purchasing behavior, which will benefit PepsiCo.
In the meantime, management has kept a close eye on expenses. Adjusted earnings per share rose 5% in the third quarter.
Patient investors can enjoy receiving dividends while they wait for revenue growth to accelerate. In a positive sign, the board of directors increased the quarterly payment by 7% earlier this year. Impressively, this marks 52 consecutive years of upside, making the stock a dividend king.
The stock pays $5.42 annually and has a dividend yield of 3.2%. That’s much higher than the S&P 500’s 1.3%.
2. Alexandria Real Estate Stocks
Alexandria Real Estate Equities is a real estate investment trust (REIT) that owns office properties. Investors certainly aren’t happy with this year’s performance, as the stock price has seen a double-digit percentage decline. While the office sector has faced challenges, including pressure from the popular work-from-home movement that emerged following the outbreak of COVID-19, Alexandria is in a unique position because its tenants must provide stable rent payments and cash flow.
It leases to life sciences companies in major research centers such as New York, Boston, San Francisco, Seattle and the Research Triangle in North Carolina. Tenants include multinational pharmaceutical companies, providers of life science products and services, and public biotechnology companies. Fortunately, they typically require personal work and collaboration to maximize effectiveness. After all, scientists have to use expensive laboratory equipment that is difficult to transport.
You can see this when you look at the occupancy rate. The properties had an occupancy rate of 94.6% in the second quarter. Alexandria’s adjusted funds from operations (FFO), a key cash flow metric for REITs, were $2.36 per share in the latest quarter, up 5.4% from a year ago. Management expects adjusted FFO per share of $9.41 to $9.53 this year, up from $8.97 in 2023.
Alexandria has been increasing dividends for several years. Most recently, it increased its quarterly payout from $1.27 to $1.30 starting in July. The stock has a dividend yield of 4.5%, which compares favorably with other REITs. The FTSE Nareit All Equity Index returned 3.6% at the end of September.
Should You Invest $1,000 in PepsiCo Now?
Consider the following before buying shares in PepsiCo:
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool holds and recommends Alexandria Real Estate Equities. The Motley Fool has a disclosure policy.
2 Great S&P 500 Dividend Stocks Flat and Down 10% to Buy and Hold Forever was originally published by The Motley Fool