Two Blue-Chip Stocks to Buy Now, But for Different Reasons
When it comes to investing in dividend-paying stocks, few companies can match the consistency and reliability of Dividend Kings. These elite companies have paid and raised their dividends for at least 50 consecutive years, providing investors with a steady stream of income and confidence in their long-term prospects.
Walmart: A Standout Among Dividend Kings
One Dividend King that has been making headlines lately is Walmart (NYSE: WMT). With a 60.3% year-to-date (YTD) return, Walmart has outperformed many of its peers, including discount retailers like Dollar General and Dollar Tree, which are hovering around five-year lows. Target, another major retailer, has recovered some of its margins but isn’t capturing growth and generating record-high sales and profits like Walmart.
Walmart’s success can be attributed to its ability to convey value to customers at different price points. The company continues to attract customers looking for staples like household goods and groceries, even as consumers have pulled back on discretionary spending. Long-term investments in internal processes, store renovations, and customer experience improvements are paying off, and its home delivery service, Walmart+, gives consumers value and convenience.
Pepsi: A Value Play with a High Yield
On the other hand, PepsiCo (NASDAQ: PEP) is having a tough year, falling 6.6% YTD to around a three-year low. Years of price increases have finally caught up to the food and beverage behemoth, contributing to declining volumes across Pepsi’s beverage business and Pepsi-owned Frito-Lay and Quaker Oats. To drum up demand, Pepsi is changing its strategy to focus on promotions and increasing the quantity of products in certain packages, which could lead to higher sales volume but also impact margins in the near term.
Despite its struggles, Pepsi offers an attractive dividend yield, significantly above the average over the last decade. With a price-to-earnings (P/E) ratio and a forward P/E ratio below its historical average, Pepsi is a value play for investors looking for a sizable dividend.
Which Stock is the Better Buy?
While Walmart is executing much better than Pepsi right now, Pepsi’s valuation discrepancy and higher yield make it an attractive option for value investors. Walmart may be a Dividend King, but it is no longer a viable source of passive income, whereas Pepsi is an excellent source of passive income.
Ultimately, the better buy comes down to your risk tolerance, preference for growth versus value, and investment objectives. For balanced investors, both stocks could be worth buying now, with a 50/50 split producing a yield of 2.1% — still above the S&P 500 average while giving you a mix of quality and value.
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