Updated

Updated · The Motley Fool · Aug 21

Coca-Cola, PepsiCo and P&G Offer Yields Up to 4.2% as Staples Weather Spending Weakness

Updated

Updated · The Motley Fool · Aug 21

Coca-Cola, PepsiCo and P&G Offer Yields Up to 4.2% as Staples Weather Spending Weakness

Q: With bond yields climbing, at what point does P&G's reliable 3% dividend lose its defensive magic for income investors?

P&G’s 3% yield loses much of its defensive appeal when risk-free yields move clearly above it and stay there without a matching drop in P&G’s valuation or an acceleration in dividend growth. In practical terms, that pressure starts once the 10-year Treasury is in the mid-4% range and becomes much harder to ignore closer to 5%. The reason is simple: P&G is not bought for yield alone. Its appeal is the combination of a roughly 3% starting yield, annual dividend growth of about 4% to 6%, and unusually durable cash flows. In fiscal 2026, it paid $10.2 billion in dividends against $19.6 billion in operating cash flow, with a payout ratio around 64% to 66%, so the dividend remains well covered. That keeps it attractive relative to bonds for investors who want income growth and some inflation protection, not just current income. But if Treasurys offer 4.5% to 5% with no equity risk, the gap becomes large enough that many income investors will demand either a higher P&G yield or a cheaper stock price. A rough break point is when the Treasury yield exceeds P&G’s dividend yield by 150 to 200 basis points and P&G is still only growing earnings and dividends at low single digits. At that stage, P&G begins to look less like a defensive income substitute and more like an expensive bond proxy. Its “magic” does not disappear entirely, because bonds do not raise their coupons. But above that threshold, valuation matters much more.

3 articles · Updated · The Motley Fool · Aug 21

PepsiCo leads the trio on income with a 4.2% forward yield, while Coca-Cola offers about 2.4% and Procter & Gamble about 3%—all above the S&P 500’s 1.1% average.
Consumer spending pressure has hit major brands, but each company is still supporting dividends through resilient operations: Coca-Cola grew second-quarter unit volume 5%, PepsiCo lifted first-half revenue nearly 7%, and P&G posted 1% sales and earnings growth.
Long payout records underpin the appeal: Coca-Cola has raised dividends for 64 straight years, PepsiCo for 54, and P&G for 70, with payout ratios generally around two-thirds to three-quarters of earnings.
Managements are also reinforcing future cash flow through margin and growth levers—Coca-Cola with a more capital-light model, PepsiCo with broader international exposure, and P&G with $2.8 billion in productivity savings.
Analysts see annual earnings growth of roughly 7% for Coca-Cola, 4% to 6% organic sales growth for PepsiCo, and about 5% for P&G, supporting the case for continued dividend increases.