Key Points
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PepsiCo’s latest results show improving organic sales growth, but its earnings recovery remains sluggish.
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Clorox offers a higher dividend yield and lower earnings multiple, but rising costs and tight dividend coverage create risks.
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Both stocks could generate attractive long-term returns, although one stands out as offering a more compelling balance of potential rewards and risks.
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Clorox (NYSE:CLX) and PepsiCo (NASDAQ:PEP) both offer something income investors don’t often see from established consumer staples giants: dividend yields above 4%. Their elevated yields reflect investor concerns about sluggish growth and rising costs.
However, those challenges could also create opportunities for investors willing to look beyond the next few quarters. Here’s a look at which dividend stock could turn a $10,000 investment into a larger fortune by 2036.
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PepsiCo’s recovery is taking time
PepsiCo stock currently sits about 19% below its 52-week high. That’s due to headwinds the beverage and snacking giant is facing, particularly in North America, driven by inflation and the impact of GLP-1 weight-loss drugs.
Its net revenue grew 5.6% during the third quarter, while organic growth was 3.1%. Meanwhile, its core earnings per share (EPS) only rose 2% during the quarter. There were some encouraging signs, including organic volume growth in both beverages and snacks.
However, the company lowered its full-year earnings outlook. It now expects core EPS growth of 2.5% to 3.5%, down from its prior expectations that growth would be at the lower end of 5% to 7%. That implies the company will earn about $8.38 at the midpoint of its guidance range. With its stock recently around $138 per share, PepsiCo trades at 16.5x earnings. That’s a reasonable level for a consumer products giant.
PepsiCo doesn’t need extraordinary growth to deliver respectable returns. A recovery to 5%–6% annual EPS growth could be enough when combined with its more than 4%-yielding dividend. That’s conservative, as its long-term growth targets are mid-single-digit organic revenue growth and high-single-digit core EPS growth.
Clorox’s recovery is even more complicated
Clorox is facing similar cost and customer headwinds, which is why its stock is down about 27% from its 52-week high. However, you wouldn’t immediately realize it by looking at its fiscal 2027 first-quarter results. The company’s net sales surged 33% to $1.9 billion, while its adjusted EPS soared 82%. However, that was due to the acquisition of GOJO and to an inventory drawdown related to a software platform transition in the year-ago period.
A closer look reveals some issues. Its gross margin fell due to higher commodity, manufacturing, and logistics costs. As a result, the company now expects adjusted EPS to be near the lower end of its $5.70–$6.00 fiscal 2027 guidance range, implying growth closer to 3%.
At that low-end estimate, Clorox trades at about 16.3x earnings at its recent share price near $93. While that’s similar to Pepsi, Clorox’s dividend yield is higher at over 5%.
Comparing their dividends
PepsiCo and Clorox have been standout dividend stocks over the years. Pepsi has increased its dividend for 64 straight years, qualifying it as a Dividend King, a company with 50 or more years of annual dividend increases. Meanwhile, Clorox is only one year away from joining that elite group.
Here’s a look at how their dividends stack up:
| Dividend metric |
PepsiCo |
Clorox |
| Annualized dividend/share |
$5.92 |
$5.00 |
| Recent stock price |
$138 |
$93 |
| Dividend yield |
4.3% |
5.4% |
| Forward adjusted EPS |
$8.38 |
$5.70 |
| Adjusted EPS payout ratio |
71% |
88% |
Pepsi has stronger dividend coverage. It has generated $10.5 billion in free cash flow over the last 12 months, easily covering its $7.9 billion in annual dividend payments. Meanwhile, Clorox didn’t cover its dividend with free cash flow in its last fiscal year. It generated only $405 million in free cash flow while paying $602 million in dividends, though a $476 million payment to terminate a joint venture impacted its free cash flow.
Clorox pays investors higher income per dollar invested today, but PepsiCo has greater flexibility to absorb setbacks and potentially grow its dividend over time.
What $10,000 could become by 2036
I ran several scenarios on the potential total returns Pepsi and Clorox could generate over the next decade. My bear case assumed minimal growth and a contraction in valuation multiples for both stocks. In contrast, the base case anticipates that both could return to delivering mid-single-digit earnings-per-share growth while maintaining their current valuation multiples. I also considered a bull case in which growth is in the mid-to-high single digits, which drives some multiple expansion.
Here’s a look at where a $10,000 investment made in these dividend stocks would be 10 years from now:
Image source: The Author.
While the returns are close, Pepsi edges out Clorox in each case. That’s because I’m slightly more optimistic that the beverage and snacking company can grow a little bit faster than the consumer household products company. I think its larger scale and stronger financial profile will give it an edge in the future.
Which would I buy for the next decade?
Clorox offers a higher dividend yield and significant upside if its turnaround succeeds. However, its elevated payout ratio and ongoing cost pressures make that outcome less certain. PepsiCo has challenges of its own, but its diversified food and beverage businesses, stronger dividend coverage, and reasonable valuation give it a more attractive combination of income and long-term growth potential. That’s why I’d choose PepsiCo as the dividend stock more likely to make investors richer over the next decade.
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Matt DiLallo has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
