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2 Top S&P 500 Dividend Stocks Down or Flat to Buy and Hold

The S&P 500 index has witnessed a 21% increase since January, capturing significant attention in the financial markets. However, not all stocks within the index have followed this upward trend. PepsiCo has maintained a flat performance, while shares of Alexandria Real Estate Equities have experienced a 10% decline. This situation, while possibly concerning to some investors, presents a potential buying opportunity for those with a long-term perspective, especially those interested in dividends.

Both PepsiCo and Alexandria Real Estate Equities have established businesses that allow investors to earn dividends while anticipating a recovery in stock prices. Here is a deeper examination of each company’s situation:

PepsiCo
PepsiCo, known for its beverages and snacks like Pepsi, Gatorade, Doritos, Quaker Chewy, and Rice-A-Roni, continues to be a staple for consumers and retailers. Despite the robust brand recognition, recent revenue growth has decelerated. In the third quarter, ending on September 7, adjusted revenue—excluding elements like foreign currency exchange translations—rose by 1.3%. This growth stemmed from price hikes which contributed three percentage points, while volume decline accounted for a two-point reduction. Consequently, PepsiCo’s share price has underperformed the broader market.

This slowdown is not necessarily due to a decline in consumer interest in PepsiCo’s products, as other consumer product companies, including McDonald’s, also report weaker performance related to consumer constraints. As inflationary pressures decrease, a return to typical purchasing patterns is expected to favorably impact PepsiCo. The company has exercised prudent cost management, with a 5% increase in adjusted earnings per share during the third quarter.

Investors with patience can benefit from dividends during the wait for accelerated top-line growth. Notably, the board has increased the quarterly dividend by 7% this year, marking 52 consecutive years of raises and consolidating PepsiCo’s status as a Dividend King. PepsiCo currently offers an annual dividend of $5.42, resulting in a 3.2% yield, notably higher than the S&P 500’s average yield of 1.3%.

Alexandria Real Estate Equities
Alexandria Real Estate Equities is a real estate investment trust (REIT) specializing in office properties. Despite being impacted by a double-digit percentage drop in share price this year, Alexandria occupies a distinct position within the office sector, which faces challenges, including the rise of remote work post-COVID-19. Its tenants, primarily life sciences companies based in research hubs like New York, Boston, and San Francisco, provide consistency in rent payments and cash flow due to their ongoing need for physical workspace and specialized lab equipment.

The company’s properties boasted a 94.6% occupancy rate in the second quarter. The same period saw a 5.4% year-over-year increase in adjusted funds from operations (FFO), a crucial REIT cash flow metric, reaching $2.36 per share. Alexandria projects an annual adjusted FFO per share of between $9.41 and $9.53, an advancement from $8.97 in 2023.

Alexandria has a track record of raising its dividends over several years. The most recent increase saw the quarterly payout grow from $1.27 to $1.30 starting in July. The company’s stock offers a 4.5% dividend yield, which is competitive when compared to the 3.6% yield of the FTSE Nareit All Equity Index as of the end of September.

Lawrence Rothman, CFA, holds no positions in the aforementioned stocks. The Motley Fool has stakes in and recommends Alexandria Real Estate Equities according to its disclosure policy.

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