There’s a reason patient investors love dividend stocks. If you hold quality dividend stocks long enough, the income keeps growing, even if you never add another dollar.
PepsiCo, a Dividend King is a textbook example. Anyone who bought shares back in 2006 and simply held on is now collecting a nearly 10% yield on their original investment.
Fidelity puts it plainly in its investor education content: dividend-paying stocks “provide a way for investors to get paid during rocky market periods” and a growing dividend stream “can help build wealth over time.”
Pepsi (PEP) is proof that this is more than theory.
Here’s a simple way to analyze the power of a growing dividend stock.
Back in 2006, PEP stock traded around $59. A $1,000 investment bought you roughly 17 shares.
At that point, PepsiCo’s annualized dividend was $1.04 per share, putting your annual dividend income at about $17.68. That’s a yield of roughly 1.8% on your cost.
In April 2026, Pepsi pays an annual dividend of $5.69 per share. It means the original 17 shares now generate $96.73 in annual dividends.
On a $1,000 investment, that’s a yield on cost of 9.7%.
You didn’t do anything. You just held the stock and increased your dividend income by more than 4x.
That’s the quiet superpower of dividend growth investing and it’s why income investors keep coming back to names like PEP.
The annual dividend expense for Pepsi is around $7.4 billion, while the beverage giant is forecast to end 2026 with a free cash flow of $10.72 billion.
Pepsi’s dividend payout ratio is not too high, given that FCF is projected to increase to $14.9 billion in 2030.
PepsiCo’s$94 billion revenue base, $15 billion in operating profit, and steady free cash flow growth give the company room to sustain and increase its dividend payout.
Related: Coca-Cola and Pepsi bring back classic flavors, launch new ones
Management also recently announced a $10 billion share repurchase program alongside the dividend hike, signaling confidence in the business.
The S&P 500 index offers a dividend yield of less than 1.5%, making PEP stock all the more attractive for passive income investors.
Wall Street’s consensus PEP stock price target is $173.36, implying a meaningful 11.2% upside from current levels of $158.
Of 15 analysts covering the stock, seven rate it a “Buy” and eight rate it a “Hold”.
At the company’s February 2026 CAGNY conference, PepsiCo Chairman and CEO Ramon Laguarta was direct about the path forward.
Pepsi CEO Ramon Laguarta is focused on cost savingsEuropa Press News/ Getty Images
He committed to accelerating organic revenue growth back to mid-single digits, driving a record year of productivity savings, and returning the company to its long-term earnings-per-share growth algorithm of high single digits.
CFO Steve Schmitt added that the company targets at least 100 basis points of operating margin expansion over the next three years, which would further strengthen the dividend growth.
Schmitt stated:
“We have a meaningful and growing dividend. So we’re going to pay and we expect to continue to grow our dividend, which we know is important to our shareholders”
PepsiCo is also reshaping its portfolio. Recent acquisitions include Poppi, Siete, and a stake in Celsius Holdings: all aimed at capturing health-conscious consumers.
No dividend stock is without risk, and volume trends in North American snacks have been soft.
Moreover, if we adjust for dividend reinvestments, Pepsi stock has returned 381% to shareholders since April 2006. In this period, the S&P 500 index is up 665%.
Pepsi has grossly underperformed the broader markets over the past two decades. However, it may be the top holding for retirees with a low risk appetite seeking passive income.
Today, Pepsi stock trades at a forward FCF multiple of nearly 20x, below its 10-year average of 25.5x.
If it continues trading at 20x FCF, the blue-chip stock could surge 40% over the next four years. After adjusting for dividends, cumulative returns could be closer to 55%.
Related: How much to invest in Pepsi for $1,000 in annual dividends (2026)
This story was originally published by TheStreet on Apr 14, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
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