Rising interest rates and bond yields have pushed the S&P 500 index toward all-time highs while compressing its aggregate dividend yield to approximately 1%, a level that may limit income for investors relying on portfolio distributions. The resulting shift toward fixed-income assets is creating a potential buying opportunity for long-term holders of high-yield equities, specifically PepsiCo, Realty Income, and Energy Transfer, which currently offer yields ranging from 4.7% to 6.5%.
PepsiCo, a global producer of snacks, beverages, and packaged food, is navigating a period of elevated operating costs driven by inflation and consumer spending restraint. Despite these challenges, the company has increased its dividend for 54 consecutive years, a record that qualifies it as a Dividend King. Wall Street sentiment on the stock remains deeply negative, which has driven its yield to a historically high 4.7%. The company’s management argues that it has weathered similar economic headwinds in the past while continuing to reward shareholders, suggesting that current pressures may be temporary.
Realty Income, the largest net-lease real estate investment trust with over 15,500 properties across North America and Europe, offers a 6% yield. Its shares face pressure because the company uses debt to finance property acquisitions, a strategy that becomes more expensive as rates rise. However, its investment-grade balance sheet provides access to low-cost capital markets, an advantage over smaller peers. The REIT has increased its monthly dividend for 31 consecutive years, and analysts note that property markets will eventually adjust to higher rates, potentially turning current volatility into a long-term opportunity.
Energy Transfer carries the highest yield of the three at 6.5%, but it requires greater risk tolerance due to its recent history. The company cut its distribution in half in 2020 to reduce leverage and shift toward a steady growth model. As one of North America’s largest midstream businesses, Energy Transfer charges fees for the use of its energy infrastructure assets, meaning its revenue is tied more to energy volumes than to commodity prices. The company targets annual distribution increases of 3% to 5%, and its stronger financial position has supported reliable income during periods of sector volatility.
While bonds offer static income streams that do not grow with business performance, these three equities provide the potential for regular dividend increases. Investors who hold these positions for five years or more may find that their income streams become more attractive over time, provided the companies continue their histories of payout growth.