Should You Buy the 3 Highest-Paying Dividend Stocks in the Nasdaq-100?

Key Points

• Kraft Heinz, PepsiCo, and Comcast all offer dividend yields far above their long-term averages right now.

• Their stocks may be down, but this trio of fallen giants should get back up in the long run.

• All three companies face flat or declining sales, but continue to generate significant free cash flow.

• 10 stocks we like better than Kraft Heinz ›

The Nasdaq-100 index is home to some of the most exciting growth stocks on the market. It includes nine of the 10 largest stocks by market cap. All 10 are members of the trillion-dollar valuation club. At the same time, the Nasdaq-100 also holds some impressive dividend payers.

Generous dividend yields can be very shareholder-friendly -- if they are a conscious choice and supported by healthy cash profits. In other cases, dividend yields can soar as the same stock's market price goes down. Some investors see outsized yields as a shorthand sign of companies in big trouble.

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Image source: Getty Images.

So let's take a look at the three richest dividend policies in the Nasdaq-100, as of July 18. Do they belong to perfectly healthy businesses with excess cash to spend, or are they fallen giants with serious issues?

1. Kraft Heinz: 5.7% dividend yield

Food giant Kraft Heinz (NASDAQ: KHC) offers the most generous dividend yield in this index today, and it's not a close race.

Kraft Heinz always carried a lofty yield. It has averaged 4.6% over the last five years. But it also soared over the last 52 weeks due to slumping share prices.

The maker of your favorite ketchup, hot dogs, and processed cheese has seen top-line revenues stall in the last six quarters. Kraft Heinz is still a fantastic cash machine, converting 12% of its sales into free cash flow on a trailing basis. That's slightly above the 11% cash profit conversion the company saw six years ago, before the COVID-19 pandemic turned the consumer world upside down.

This stock honestly looks undervalued right now, trading at just 10.4 times free cash flow and 0.7 times book value. These valuation ratios are low, even in the conservative space of packaged food producers. The company is battling the same macroeconomic headwinds as everyone else, but with an unmatched portfolio of food brands by its side. I think it's a good idea to lock in this soaring dividend yield by picking up some Kraft Heinz shares on the cheap.

2. PepsiCo: 3.9% yield

I'm not leaving the food market quite yet. The next name on this list is PepsiCo (NASDAQ: PEP), the storied maker of soft drinks and snack foods.

This recent dividend boost is even sharper than Kraft Heinz's increase. PepsiCo's yield has averaged 2.9% since the summer of 2020, with a 34% uptick in the last year.

The company had some inventory management issues last year, and sales have been rather flat since the summer of 2023. I see a world-class consumer goods business struggling to meet its own lofty quality standards.

This situation looks a lot like the Kraft Heinz setup. Opportunistic investors would probably do well in the long run if they grabbed some PepsiCo shares in this extended price dip.

3. Comcast: 3.8% yield

Then there's entertainment powerhouse Comcast (NASDAQ: CMCSA), also providing dividend yields well above its long-term averages.

It's another tale of plunging share prices resulting in rich dividend yields. And once again, I wouldn't say that Comcast is in financial trouble.

The new Epic Universe theme park at Comcast's Universal Orlando resort, opened in late May, should breathe new life into the underperforming theme parks division. The Universal movie studio segment recently scored big hits like Jurassic World: Rebirth and the live-action remake of How to Train Your Dragon. Meanwhile, Comcast's massive connectivity and platforms division provides a robust cash-generating base from which the company can launch more ambitious growth initiatives.

I don't mean to repeat myself, but Comcast could also be a great buy at this low point. Sure, the entertainment market is changing at light speed, but the Universal brand is putting up a real fight.

Should you invest $1,000 in Kraft Heinz right now?

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Comcast and Kraft Heinz. The Motley Fool has a disclosure policy.