Dividend Kings: Reliable Income Sources from PepsiCo, Target, and Hormel Foods

Income investors often seek dependable dividends. While it’s relatively common for dividend-paying firms to lower or even eliminate their dividends, PepsiCo (NASDAQ: PEP), Target (NYSE: TGT), and Hormel Foods (NYSE: HRL) stand out as notable exceptions in my experience. These firms have consistently paid quarterly dividends and raised them annually for over 50 years, earning their status as Dividend Kings. They are among the most reliable dividend stocks globally.

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Currently, these stocks represent a potentially lucrative opportunity, particularly in terms of dividend payouts relative to stock prices. The dividend yield is an essential metric for investors, indicating the return based on investment. For example, investing $1,000 in a stock with a 2% yield would yield $20 annually.

Notably, a 2% yield is roughly the market average. In contrast, Pepsi, Target, and Hormel offer nearly double that average. Each company’s dividend yield is either at an all-time high or near it.

PEP Dividend Yield data by YCharts

Given their status as Dividend Kings and the favorable conditions for their dividend payments, Pepsi, Target, and Hormel deserve closer examination from investors today.

The pivotal question for each is whether their profits can continue growing in the long term, which is crucial for sustaining dividend growth. Based on the following insights, the answer appears to be yes.

1. Pepsi

PepsiCo manages over 200 food and beverage brands, with 22 of these generating over $1 billion in annual revenue. The company’s vast scale means not every aspect will be covered, but two key areas have the potential to enhance profits in the coming years.

First, Pepsi is investing in warehouse automation. Given its extensive product line, effective supply chain management is crucial. Companies like Amazon have seen profitability improve after automating their warehouses; Pepsi is expected to experience similar benefits.

Secondly, Pepsi has identified over 10 emerging international markets to target for growth. CEO Ramon Laguarta indicated that 60% of its business comes from just 5% of the global population, prompting the investment in these new markets. As these regions grow, profitability should also rise.

With a 3.6% dividend yield and a remarkable 53-year streak of dividend payments, Pepsi’s potential for profit growth signals that its dividend increases may well extend to 60 years or more.

2. Target

Target’s payout ratio is significantly lower than its peers, at just 50%. This gives the company ample room to raise dividends, even if profits stay flat. However, Target has pathways for profit enhancement.

One of the largest retailers globally, Target is expanding its e-commerce through Target Plus, which now operates as a $1 billion business with double-digit growth. This initiative allows third-party vendors to sell on its platform, which enhances profit margins much like strategies seen at companies such as Walmart.

These developments point to a potential increase in profits, thereby motivating management to raise dividends further. Consequently, securing shares now at a 4.3% yield could be a wise long-term decision.

3. Hormel

Hormel has a long-standing history of dividend payments dating back over 30 years before Target even opened its first store in 1962. The company is nearing 100 years of uninterrupted dividends and has raised its dividend for 59 consecutive years—a remarkable feat.

This track record speaks volumes about Hormel’s management and commitment to returning value to shareholders, making it another solid choice for income-focused investors.