2 cheap dividend stocks I’m watching in September

When interest rates jump, traditional dividend stocks often get ignored or sold off. That’s exactly what’s been happening lately: with the 10‑year Treasury yield hovering near 5%, many income investors have moved into bonds and money market funds, leaving some solid dividend payers trading at much cheaper prices.

I’m not a purely dividend-focused investor, but I do pay attention when high-quality companies start yielding close to what you can get on a government bond – especially when those companies are still growing. In this piece, I want to walk through two dividend stocks that have my attention right now: Pepsi and Realty Income.

This is not a recommendation to buy either stock, just a look at why they’re interesting and how I think about them as part of a long-term investing plan.

Why dividend stocks look more interesting when rates are high

When safe bonds yield next to nothing, dividend stocks can look very attractive. But when the 10‑year Treasury is near 5%, the bar is higher. For a dividend stock to be worth the extra risk versus a government bond, I want to see at least one of these:

• A starting dividend yield that’s competitive with bond yields
• A strong history of growing that dividend over time
• A business that can raise prices and grow earnings faster than inflation

Both Pepsi and Realty Income check some of these boxes, which is why they stand out to me right now.

Dividend stock #1: Pepsi (PEP)

Pepsi is one of those companies many of us know from everyday life, but it’s much more than just soda. The business includes:

• Traditional soft drinks (Pepsi, Mountain Dew, etc.)
• Sports drinks like Gatorade
• Coffee and tea beverages through partnerships (like Starbucks-branded drinks in coolers, Lipton teas)
• Bottled waters and flavored waters (bubly and others)
• Snacks, including chips and other packaged foods

This mix matters because consumer habits are changing. Soda consumption has been under pressure in developed markets for years, especially in the U.S. Pepsi has seen volume declines in some periods – think drops of 1–3% in certain years. But they’ve been leaning harder into water, sports drinks, and other “healthier” options, and recently even managed to grow volumes about 1% in a quarter.

Pricing power: why it’s such a big deal

What really stands out with Pepsi is its pricing power. Even when volumes were flat or slightly down, the company was still raising prices – and consumers were willing to pay.

At one point, Pepsi raised prices by around 16–17% while volumes only dipped 1–2%. More recently, you might see something like a 2% drop in volume paired with a 4–5% increase in prices. That means total revenue can still grow even if people buy a little less product.

This kind of pricing power is gold in an inflationary world. It helps protect profits, supports dividend growth, and makes the business more resilient over time.

Pepsi’s dividend: yield and safety

Pepsi has a long, reliable dividend history:

• Over 50 years of paying and growing its dividend
• Roughly 7% average annual dividend growth over time
• Current dividend yield around 4.2–4.5% (depending on the exact price)

That yield is unusually high for Pepsi compared with the last several years, and it’s getting close to the 10‑year Treasury yield. The obvious question: is it safe?

One way I look at this is by comparing the dividend yield to the free cash flow yield (free cash flow is the cash left after the company pays its operating expenses and necessary investments). Pepsi’s free cash flow yield is around 6%, while the dividend yield is about 4.5%. That leaves roughly 1.5 percentage points of free cash flow “cushion” to:

• Pay down debt
• Buy back shares
• Or continue raising the dividend

There were some recent years when Pepsi’s free cash flow looked weaker, which made some investors worry about a possible dividend cut. But a big part of that came from temporary changes in working capital (timing of payments, inventory, etc.), not a broken business. As those one-time effects fade, free cash flow has been recovering and is expected to grow over the next few years.

Based on that, I don’t see an obvious reason to expect a dividend cut here, though of course nothing is guaranteed.

Valuation: why Pepsi looks cheaper than usual

For years, Pepsi traded at a premium valuation – often around 23–26 times earnings, and as recently as early 2026 it was closer to 19–20 times. Now, it’s closer to 15 times earnings, which is a big reset for a stable, global consumer brand.

The company has been growing earnings per share (EPS) at about 8% a year on average. Management still expects “high single-digit” EPS growth going forward, which typically means 7–8% annually. They can get there through:

• Ongoing price increases (often 4–5% per year)
• Modest volume growth as they lean into stronger categories
• Margin improvements
• Share buybacks

If I combine that 7–8% expected earnings growth with a roughly 4.5% dividend yield, I’m looking at a potential total return of around 12–13% per year over the long run, assuming the valuation multiple stays where it is. If the market eventually re-rates Pepsi from 15 times earnings back up toward 18–20 times, returns could be even higher. But I never want to rely on multiple expansion for an investment to work – I treat that as a possible bonus, not the core of the thesis.

Bottom line: at today’s price, I see Pepsi as a high-quality, slow-and-steady compounder that’s suddenly offering a bond-like yield, with the added benefit of growth and dividend increases.

Dividend stock #2: Realty Income (ticker: O)

The second stock on my radar is Realty Income, a real estate investment trust (REIT) that focuses on single-tenant commercial properties. This is the company that brands itself as “The Monthly Dividend Company,” because it pays dividends every month instead of quarterly.

Over the last five years, the stock has been roughly flat to slightly negative, even though the business has continued to grow. A big part of that has to do with higher interest rates, which hit REITs from two directions:

• They compete with REIT yields (bonds look more attractive).
• They raise borrowing costs, making it more expensive for REITs to grow.

What Realty Income actually owns

Realty Income owns thousands of properties leased to well-known tenants. Over time, they’ve improved their tenant mix and reduced concentration in weaker names. Today, some of their notable tenants include:

• 7‑Eleven
• Wynn Resorts (including a piece of the Bellagio in Las Vegas)
• BJ’s Wholesale Club
• Tractor Supply
• FedEx
• MGM
• CVS
• Home Depot
• Walmart and Sam’s Club

They still have some exposure to chains like Dollar General, Family Dollar, and Walgreens, but those concentrations have come down compared with a few years ago.

Realty Income’s properties are typically under long-term leases, with a weighted average remaining lease term of about 8.6 years and a very high occupancy rate (essentially fully leased). That stability is part of what supports the dividend.

How higher rates affect REITs like Realty Income

Unlike a company such as Pepsi, which can grow largely from internal cash flow and pricing power, REITs usually grow by acquiring new properties. To do that, they rely on:

• Borrowing (taking on debt)
• Issuing new shares (equity)

When interest rates were near 0–1%, Realty Income could borrow very cheaply and buy properties at attractive cap rates (roughly, the yield on the property’s purchase price). With today’s higher rates, the math is tougher. For example, if a property has a cap rate of 6.5%, but debt costs them around 6–6.2%, there’s not a lot of spread left to create value for shareholders.

Because of that, Realty Income has leaned more on issuing new shares instead of piling on expensive debt. Over several years, shares outstanding roughly doubled from about 414 million to around 924 million. That kind of dilution usually pressures the stock price, and we’ve seen that play out.

However, dilution isn’t automatically bad if the company is issuing shares at attractive prices and using the money to buy properties that grow cash flow per share. In Realty Income’s case, adjusted funds from operations (AFFO) per share – the REIT equivalent of earnings per share – has still grown, from about $3.59 to $4.28 per share over time. That tells me the dilution has been value-creating, not just a desperate move to stay afloat.

Growth opportunities and market size

I used to worry that Realty Income was “too big” to keep growing at a decent rate. But they’ve expanded into new property types and geographies, including Europe, where they see a large opportunity and less competition than in the U.S.

Today, their estimated total addressable market (TAM) is around $15 trillion:

• About $6 trillion in the U.S.
• About $9 trillion in Europe

That doesn’t mean they’ll capture a huge portion of that, but it does suggest there’s still plenty of room to deploy capital if they can find good deals.

Realty Income’s dividend and valuation

Here’s what stands out about Realty Income’s dividend profile:

• Current yield around 5.5% (higher than the 10‑year Treasury)
• Monthly payouts (nice for those who like steady income)
• Over 30 years of paying a dividend
• Roughly 4% average annual dividend growth over time

So you’re trading off: a higher starting yield than Pepsi, but slower growth.

On valuation, Realty Income is trading at about 12 times price-to-AFFO. Historically, it has averaged closer to 15 times, and when interest rates were near zero, it sometimes traded around 20 times. At 12 times, it doesn’t look expensive to me for a REIT of this quality, though higher rates may keep the multiple lower than in the ultra-low-rate era.

Realty Income has typically grown AFFO per share around 3–4% per year. If I combine a 5.5% starting yield with, say, 4% AFFO per share growth, that suggests a potential total return of roughly 9–10% per year over the long run, again not counting any possible multiple expansion.

Pepsi vs. Realty Income: how I compare them

Both stocks are interesting, but they play slightly different roles in a portfolio.

Pepsi:

• Yield: around 4.2–4.5%
• Dividend growth: historically about 7% per year
• Business model: global consumer staples with strong pricing power
• Balance sheet: doesn’t rely on constant new debt or equity to grow
• Potential long-term return (my rough view): 12–13% annually if earnings grow 7–8% and the valuation stays around 15x

Realty Income:

• Yield: around 5.5% (paid monthly)
• Dividend growth: historically about 4% per year
• Business model: REIT, heavily influenced by interest rates and capital markets
• Growth: depends on access to reasonably priced debt and equity
• Potential long-term return (my rough view): around 10% annually combining yield and growth, with some upside if the valuation recovers

If I had to choose which looks more attractive right now purely on a risk/reward basis, I lean toward Pepsi. You’re getting:

• A high-quality, diversified consumer business
• Strong pricing power
• A long track record of dividend growth
• A valuation that’s cheaper than its own history

Realty Income still looks appealing for investors who want higher current income and like the idea of monthly dividends, but its growth is more constrained by the interest rate environment.

How these kinds of stocks can fit into your plan

Before buying any individual stock, it’s important to step back and ask:

• Does this fit my time horizon?
• Am I comfortable with the volatility versus something like a bond?
• How much of my portfolio do I want in individual stocks versus broad funds or ETFs?

If you’re just getting started with dividend investing, it can be helpful to first understand what makes a dividend stock durable: things like payout ratios, balance sheet strength, and consistent cash flow. I walk through those concepts in more detail in this guide on finding dividend growth stocks you can hold for the long term.

And if you’re investing from outside the U.S., your local opportunities may look very different. For example, I’ve written about regional options like top Canadian dividend stocks, which face their own tax rules and market dynamics.

As always, none of this is a guarantee. Dividends can be cut, valuations can stay low for longer than we’d like, and interest rates can move in unexpected ways. But when strong businesses like Pepsi or well-run REITs like Realty Income get cheaper while still paying solid, growing dividends, I think it’s worth paying attention.

If you’re considering stocks like these, make sure they fit into a broader plan that includes diversification, an emergency fund, and clear goals for your money. Dividends can be a great tool – but they work best as part of a balanced, long-term strategy.