Want Income for Life? PepsiCo Yields 4.3% and Has the Kind of Competitive Moat That Makes the Income Durable.

PepsiCo (NASDAQ: PEP) stock has reached a critical juncture, presenting an opportunity for investors. The company's struggles have led to a falling stock price and, by extension, a rising dividend yield.

More importantly, recent events have aligned in a way that could lead to a long-awaited stock price recovery. Also, its rising profits bode well for its continued dividend growth.

Here is what happened that turned PepsiCo around and how it can benefit stock investors.

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PepsiCo's value as an income stock

As conditions stand now, new PepsiCo shareholders will earn a 4.3% dividend return. That is far above the 3.2% average yield of the last five years, and well above the 1.1% S&P 500 (SNPINDEX: ^GSPC) average.

That return stems from its $5.92-per-share annual dividend. Moreover, since the company has amassed a 54-year record of annual payout hikes, PepsiCo is a Dividend King.

The Dividend King status is critical because a company must raise its payout for at least 50 consecutive years to achieve it. Such a status makes a stock attractive to certain dividend funds. It also likely means that ending the increases would undermine confidence in the stock, a compelling incentive for PepsiCo to maintain the current pace of payout hikes.

Furthermore, free cash flow for the trailing 12 months was $10.8 billion. Since dividend costs are on track to reach about $8 billion for the fiscal year, the company can likely afford to maintain and increase the payout.

Why the income (and stock price) growth is likely to continue

Additionally, dividend funding is likely to improve.

Until recently, PepsiCo appeared destined for stagnation or possibly decline. Consumers had increasingly turned against the unhealthy beverages and packaged foods that define most of the company's product lineup.

In recent years, PepsiCo has responded. The company selectively cut prices and cut some of its products. It then offered health-conscious products and put healthier ingredients in others. It also acquired Siete Foods, a brand focused on healthy ingredients, to build on these initiatives.

Consequently, in the first nine months of fiscal 2026 (ended Sept. 5), revenue of $69 billion climbed 7% annually from year-ago levels. In contrast, revenue increased by less than 1% annually in the first three quarters of 2025.

Expenses climbed at a slower pace, meaning the $8.4 billion in net income for the first nine months of 2026 was up 47% over the same period.

Unfortunately, the stock has not responded, and it is down for the year. Nonetheless, that drop has taken its P/E ratio to 17, a level near multiyear lows. Such a valuation arguably adds to the draw when income investors know they can earn 4.3% in dividend returns.

Investing in PepsiCo stock

As conditions stand now, new PepsiCo investors can buy a high-yielding, stable, and rising income stream at a discounted valuation.

Indeed, PepsiCo had struggled to adapt to shifting consumer tastes. However, it has adjusted its product lines to address that change, and sales have risen as a result.

Assuming that trend continues, PepsiCo investors should benefit from a generous dividend at a discounted price, possibly making it an undervalued dividend stock you can buy and hold forever.

Will Healy 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.