Investors looking for quality dividend stocks at a discount have three intriguing options: PepsiCo, United Parcel Service (UPS), and Merck. These blue-chip companies are facing headwinds, but their long-term prospects remain strong. With share prices at their lowest levels in years, they present a compelling opportunity for income-focused investors.
PepsiCo: A Dividend King at a Rare Discount
PepsiCo has built a reputation as a consumer staple powerhouse, producing everything from soda to snack foods. But its stock price tells a different story lately.
For the first time since 2021, shares of PepsiCo are trading at levels that make it look downright cheap. The stock has fallen 14% over the past year, largely due to concerns about slowing growth and resistance to price hikes. Consumers who tolerated rising costs during inflationary periods are now pushing back, making it harder for PepsiCo to pass on increased expenses.
Yet, the company remains fundamentally solid. PepsiCo’s fourth-quarter revenue of $27.8 billion was nearly unchanged from the previous year, but profits jumped 16% to over $1.5 billion. That’s an encouraging sign that the company is managing its costs effectively.
For dividend investors, the appeal is clear:
- Dividend yield of 3.6%, well above market averages.
- Consistent dividend growth, with over 50 years of consecutive increases.
- Strong brand portfolio, ensuring stability even in economic downturns.
PepsiCo isn’t a flashy stock, but at these levels, it’s a reliable income generator with room for long-term appreciation.
UPS: A Short-Term Struggle, A Long-Term Winner
United Parcel Service (UPS) has been under intense pressure in recent months. After releasing its latest earnings report in January, the stock dropped more than 16%, driven by a significant shift in its business strategy.
The biggest news? UPS is scaling back its partnership with Amazon, its largest customer. By 2026, Amazon-related deliveries will be less than half of what they are today. On the surface, that might sound alarming. But CEO Carol Tomé insists the move will boost profitability.
The reasoning is simple:
- Amazon’s massive delivery volume hasn’t necessarily translated into high margins for UPS.
- Focusing on more profitable shipping contracts could improve the company’s bottom line.
- Revenue may dip in the short term, but long-term margins should be stronger than before.
UPS expects $89 billion in revenue for 2025, down slightly from $91.1 billion in 2024. That cautious forecast has investors nervous, but the dividend remains a bright spot. At its current share price, UPS offers a high yield of 4.9%, nearly four times the S&P 500’s average.
With global shipping demand likely to rebound and UPS refining its operations, this could be an attractive entry point for long-term investors.
Merck: A Healthcare Giant Facing Uncertainty
Pharmaceutical giant Merck is no stranger to volatility, but its latest struggles have investors questioning its future. The stock is down sharply, now trading near its lowest levels since late 2022.
The biggest issue? China.
Merck announced it is pausing shipments of its Gardasil vaccine—a key product that protects against HPV. Demand in China has weakened, and existing inventory is sufficient for now. Some analysts worry that worsening trade relations between the U.S. and China could further impact Merck’s business.
Beyond that, concerns about Keytruda, Merck’s blockbuster cancer drug, are weighing on sentiment. Biosimilar competition could begin chipping away at sales by 2028, raising questions about the company’s long-term growth strategy.
But there are reasons for optimism:
- Merck remains highly profitable, with strong earnings even amid current challenges.
- Keytruda’s future isn’t over—a subcutaneous version of the drug is in development, which could sustain demand.
- At less than 10 times future earnings, the stock looks inexpensive by historical standards.
While uncertainty looms, Merck’s 3.3% dividend yield and continued investments in research and development make it a high-risk, high-reward bet for patient investors.
Are These Stocks Worth Buying Now?
For income investors, all three companies—PepsiCo, UPS, and Merck—offer attractive dividend yields and strong brand recognition. The near-term challenges they face have driven their stock prices to multiyear lows, but their core businesses remain intact.
Investors willing to take a long-term approach could find these dividend stocks to be compelling additions to their portfolios. Buying quality stocks when they’re down has historically been a winning strategy—and these three could prove to be no exception.
