Don’t Wait: Load Up On These 3 Dividend Stocks Now

The underlying dynamics of this fast-evolving market are really hard to pin down. On the one hand, there are clear recessionary forces building behind the scenes as a result of quickly shifting trade policy coming from the Trump administration. On the other hand, calls for interest rates to decline as various measures suggest the employment market is weakening could offset some of these pressures, particularly if the Federal Reserve shifts its focus from inflation to supporting jobs.

The thing is, whether you’re in the camp that a recession is almost assuredly on the horizon over the next year or two, or in the camp that we could be in for a soft landing (but have some collateral damage in the jobs market), it’s likely we’re going to see interest rates come down. 

Now, tariffs (and the inflation tariffs may bring) is the big wildcard for most investors right now. While Trump has backed off on most retaliatory tariffs after what was a rather incredible tantrum thrown by the bond market, it’s unclear if he’ll fully back down on the existing tariffs in place on China, Canada, Mexico and the rest of the world (with his baseline 10% tariff) over the medium-term. So, we’re not necessarily headed into a lower-for-longer interest rate environment right away.

But for those who think that lower rates are on their way, buying dividend stocks before interest rates decline can be a great option in such an environment. Here are three companies I think could have big upside as fixed income proxies in such an environment. 

Procter & Gamble (PG)

For investors who aren’t 100% sure how the current political backdrop could affect the stock market, sticking with companies that have much more robust fundamentals and provide more defensive exposure can certainly be the way to go. In this regard, Procter & Gamble (NYSE:PG) stands out as a top option in this current macro backdrop.

The company’s relatively recession-resistant business model allows investors to benefit from very stable and continuous growth for household staples folks need to buy every day. The whole “toothpaste test” is a thing in serious downturns. Consumers will pare back spending on almost all discretionary goods, and focus their attention on buying only what they need. In that regard, as a key provider of the sort of household staples most consumers can’t go without, Procter & Gamble is among the safest defensive picks in a bear market.

I’m not saying we’re on the precipice of an elongated bear market. But I am saying that most indices have already dropped into bear market territory, and some market participants are bracing for a more significant downturn. If you’re in that group, Procter & Gamble’s long-term potential upside and its trailing dividend yield of 2.5% may look more attractive than it has in some time. 

Realty Income (O)

Other investors who think that we could be due for a soft(er) landing which coincides with interest rates trending lower may want to consider Realty Income (NYSE:O). This company is set up as a real estate investment trust (REIT) oriented to ward investors who are looking for solid dividend growth in an environment where interest rates are declining.

Indeed, when interest rates move lower, that’s generally a bullish catalyst for the real estate market. Lower interest rates translate into lower mortgage payments for homebuyers. And with most homebuyers tending to want to purchase as much home as they can at any given time, that means that prices tend to rise disproportionately with respect to the size of interest rate cuts.

If we do indeed move toward a near-zero interest rate environment, as was seen following the pandemic, REITs such as Realty Income could be due for some impressive upside from here. And considering that this fund has a current dividend yield of more than 5.5%, as well as a very impressive history of dividend growth over time, those looking at stocks with dividend growth upside have a lot to like about owning this name here.

That’s not to say there’s not potential risk with holding a stock like Realty Income in this environment – there is. But for those looking for greater real estate exposure right now, this is a top option I think looks compelling at its current valuation.

PepsiCo (PEP)

Last, but not least, we have beverage giant PepsiCo (NASDAQ:PEP) as yet another great dividend stock that may be worth considering right now. In fact, I’d go so far as to say this could be a forever holding for most investors, given the company’s impressive position in a stable and growing carbonated beverage market. And with Pepsi’s impressive portfolio of snack brands (which the company’s management team has been growing over time), there’s a lot to like about the fundamental structural strength of this company’s business model and long-term growth drivers. 

Additionally, it’s worth pointing out that Pepsi has done a great job of returning value to shareholders over time in the form of dividends and share buybacks. In fact, the company is among an elite group of companies that’s delivered dividend increases for more than 50 consecutive years. A lot has happened over the past five decades, but overall, the global market for carbonated beverages and snacks continues to expand. For those who think the underlying drivers that have taken Pepsi to these heights will remain in place, this is a stock to continue owning at current levels.

With a current dividend yield of 3.8%, and rock-solid fundamental growth drivers supporting a valuation around this level, Pepsi remains a holding I think is worth considering for investors seeking both income and defensiveness in this current market. 

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