1 Magnificent S&P 500 Dividend Stock Down 23% to Buy and Hold Forever

Equity markets have been volatile this year. Uncertain tariff policies and the impact on the global economy have certainly played a role.

During these unsettled times, turning to a dividend-paying stock that has experienced a large price drop can prove a wise investment, providing the company's long-term fundamentals remain sound.

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Fortunately, PepsiCo (NASDAQ: PEP), although its share price has fallen nearly 23% over the last year through May 30, fits the bill nicely. It's time to look closely at what makes this consumer staples company a buying opportunity for long-term dividend-seeking investors.

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Popular products hit temporary snag

Most people know about the company's Pepsi soda brand. However, PepsiCo has a host of brands across beverage and food categories that consumers recognize and buy.

PepsiCo's beverages include Gatorade, Mountain Dew, and Ocean Spray. It also sells food like cereal, granola bars, oatmeal, and a host of snacks under brands like Life, Quaker, and Doritos.

Unfortunately, even PepsiCo's products aren't immune from consumers fatigued by higher prices. Its first-quarter adjusted revenue, which removes foreign-currency translation effects and the impact of acquisitions and divestitures, grew a tepid 1%. This was entirely due to higher prices, which added 3 percentage points. Meanwhile, volume subtracted 2 percentage points.

Since the company sells its products globally, the impact of tariffs remains unclear. However, it could raise costs and force management to raise prices. This could further dampen demand and hurt profitability. Management currently expects this year's adjusted earnings per share to come in roughly flat versus 2024. Previously, it called for a mid-single-digit percentage increase.

However, given the company's breadth of offerings, I'm not concerned about long-term demand when tariff policies become more stable.

It's a king

In the meantime, PepsiCo's shareholders can collect reliable dividends. In fact, the board of directors raised the June quarter's payout by 5%. That marked 53 straight years with an increase, making the company a Dividend King.

At the new $5.69 per-share annual rate, shareholders can sit back and collect the 4.3% dividend yield. That's more than triple the S&P 500 index's 1.3% yield.

It's typically a positive sign when companies raise dividends, particularly given that they're loath to cut payouts. However, it's still useful to check for yourself. And PepsiCo meets the test with a 78% payout ratio.

Dividends plus capital appreciation

Of course, PepsiCo's dividends could get cut if its products see a long-term decline in demand. However, with its stable of well-known products, I don't see that happening. Consumers have been hit with higher prices before, and more may come down the pike.

These are short-term effects, but demand should rebound once the larger economic headwinds calm down. After all, people will still buy soda, Gatorade, and chips, and PepsiCo has a plethora of popular offerings.

Meanwhile, the stock's valuation has become more attractive. The shares trade at a price-to-earnings (P/E) ratio of 19, down from 26 a year ago. It's also cheaper than the S&P 500's average P/E multiple of 28.

You can sit back and collect dividends while waiting for higher demand for PepsiCo's products to return. Once it does, earnings growth will accelerate, and the stock likely will receive a higher valuation.

That should result in an attractive total return for PepsiCo's shareholders who can see the big picture while the company suffers through some short-term earnings pain.

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Lawrence Rothman, CFA 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.