Even With 10-Year Treasury Yields at a 20-Month High, I'd Still Rather Buy This S&P 500 Dividend Stock for Passive Income in September.

If all you care about is generating income, then you'll likely find the roughly 4.8% yield of the 10-year Treasury more attractive than PepsiCo's (NASDAQ: PEP) 4.2% yield. The 60 basis point lift in yield amounts to roughly 14% more income in your pocket. But there's one very big problem with this trade-off that I can't justify. Here's why, despite a lower yield, I think PepsiCo still beats Treasuries.

What are you buying with a Treasury?

A Treasury is a bond issued by the U.S. government. The deal is that you loan the government money, and it pays you interest on that loan. The interest you earn stays the same throughout the life of the loan. And when the loan matures, you get your principal back. The big problem with this arrangement boils down to inflation, which is running hot right now.

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Inflation erodes the buying power of the dollar as prices rise. While bonds can provide stability to a portfolio, the interest you earn remains the same for the life of the bond, and you only get your principal back when the bond matures. The buying power of both is reduced by inflation over time. If you have a long investment horizon, bonds may not be the best option. At the very least, you may want to have a higher weighting in stocks.

That's because a stock represents a piece of an operating business. In the case of PepsiCo, the business happens to be one of the world's largest consumer staples companies. Notably, PepsiCo operates in the beverage, snack, and packaged food sectors globally, providing meaningful diversification. It is also a Dividend King, with over 50 consecutive annual dividend increases. It is facing headwinds, as are many of its peers, but history suggests it will get its product lineup back in sync with consumer buying habits.

When PepsiCo does that, it will be able to grow its business again. And its regular annual dividend increases will likely increase in size. Which means the value of the business will rise, and the income I collect as a shareholder will increase, as well. I can't guarantee either of those things, of course, but I have the opportunity to participate in the business's growth over time, which has historically allowed investors to offset and even outpace the ravages of inflation. Treasury bonds simply can't offer that.

If you are willing to take on the risk, buy PepsiCo

Treasury bonds are generally considered risk-free because they are backed by the U.S. government. PepsiCo comes with material risks, from near-term headwinds it is facing to the long-term reality that it is an operating business. So if you can't stomach any risk, Treasuries are probably a better option.

However, a company doesn't earn Dividend King status by accident, so PepsiCo has proven it is a reliable steward of shareholder capital. If you can stomach a little uncertainty, I'd buy high-yield S&P 500 index (SNPINDEX: ^GSPC) member PepsiCo ahead of a 10-year Treasury.

Reuben Gregg Brewer has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.