The 10-Year Treasury Bond Yields Nearly 5% Right Now. Here's Why I'd Still Choose PepsiCo for Passive Income.

This year's rapid rise in interest rates has given income investors much to think about. Longer-dated bonds now offer bigger yields than some of the market's highest-regarded dividend stocks. For instance, 10-year Treasuries are now paying 4.8% (and are headed toward 2023's multi-year peak of just under 5%).

By contrast, blue chip beverage company PepsiCo (NASDAQ: PEP) sports a forward-looking dividend yield of only 4.3%. Nevertheless, I'd still choose PepsiCo's stock as a long-term passive income play. Here's why.

More to the matter than mere yield

Don't misread the message. If you prefer a government-backed guarantee of recurring income as well as stable value of your principal investment, Treasuries are your best bet. Just understand the two key differences between these two very different types of holdings before diving into one over the other though.

The first of these is the payments themselves. The fact that government bonds make interest payments every six months while most stocks dish out quarterly dividends is noteworthy, but manageable, and not a serious enough concern to sway your decision.

Rather, the payment detail to consider here is that while the annual dividend payments from PepsiCo will almost certainly continue growing -- extending a 54-year streak of annual per-share dividend increases -- the size of the Treasury's interest payment is etched in stone. It won't be growing any between now and its maturity date. If inflation lingers at levels it's been at of late, that could really chip away at these interest payments' buying power.

The second reason I'd opt for a stake in PepsiCo rather than a 10-year Treasury despite the bond's higher yield is PepsiCo stock's potential for at least some price appreciation. Although it's performed poorly since 2023 (falling 30% from that year's peak), the underpinnings of that pullback are cyclical. In 10 years' time, I'm confident enough that we'll see some measure of capital gains, whereas the Treasury bond will remain pretty close to its current price all the way through its maturity. Again, given enough time, inflation can take its toll.

Weigh everything

That's just me, of course. I'm thinking longer-term, and I've still got confidence that PepsiCo's stock will bounce back once other investors recognize just how resilient the beverage company's business really is. If you're looking for something shorter-term and/or more certain, government bonds might make more sense for you.

Image source: Getty Images.

Of course, this is the sort of comparative analysis all investors should be doing when they've got a similar choice to make. Every investment has its pros and cons. Your job is simply making sure you understand them, and then choosing the optimal trade-off for you.

One last detail to consider: While comparing bond yields and dividend yields is an important starting point, also consider how quickly a dividend payer is likely to raise its dividend payment for the foreseeable future. Even if its initial yield is relatively low, if you're going to stick with it long enough, your dividend income could eventually, dramatically exceed your interest income.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.