If a Recession Hits in 2027, This Is the Dividend Stock I Want to Own
It's not the name you'd usually expect from this particular business either.
In the beginning of this year, the economy seemed stable. While inflation was still present, it was considered manageable. Artificial intelligence (AI) technology stocks were thriving due to their significant promise, which generally benefitted the overall market and economy. However, the risk of a recession has become increasingly apparent.
Inflation has not subsided, and the Federal Reserve remains uncertain about whether raising interest rates will alleviate or exacerbate the situation. It cannot be ruled out that a prolonged period of economic weakness may occur.
One dividend-paying consumer-goods company that comes to mind to safeguard my portfolio against this potential threat is PepsiCo (PEP -0.96%). While Coca-Cola (KO -0.06%) is the more traditional choice for investors seeking security, there is an important distinction between these two stocks currently. Coca-Cola's forward-looking dividend yield has dropped to 2.2% due to its 50% share-price increase over the past two years, compared to PepsiCo's current yield of 4.2%.
PepsiCo has faced greater inflation challenges than Coca-Cola, resulting in a 36% decline in its stock price from its 2023 high to last month's multiyear low. However, there are signs of improvement as the company's third-quarter organic revenue growth rose 3.1% year over year, and it expects this trend to continue in the current quarter.
While this may not be exceptional for technology stocks, it is commendable for a consumer goods company. Moreover, PepsiCo has demonstrated resilience during previous recessions, such as the 2008 subprime mortgage crisis and the COVID-19 pandemic recession. During more traditional economic downturns like the dot-com bubble burst in the early 2000s and the 1990s recession, PepsiCo's shares actually experienced growth, showcasing the robustness of the beverage industry even when consumer spending declines in other areas.
Despite the uncertainty surrounding the next recession, PepsiCo's dividend is likely to remain consistent. The company has generated sufficient profits to fully fund its dividend payments, even amidst the past couple of years' inflationary pressures. Historically, PepsiCo has maintained a 54-year streak of uninterrupted annual dividend growth, further highlighting its financial stability. In times of market turmoil, a reliable cash flow can prove to be invaluable.
Written by urgent.news from Motley Fool's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
