3 Quality Dividend Stocks Yielding More Than the 3.6% Social Security COLA
Social Security's 3.6% COLA keeps your benefit moving, but your brokerage account has to fend for itself. Three dividend stocks not only clear that income bar but also carry the coverage ratios to prove the payout can last.
Social Security benefits rise 3.6% under the cost-of-living adjustment taking effect in 2027. The raise is applied to the check each retiree already gets, so it helps the benefit keep up with prices. It does nothing for the savings in a brokerage account. To grow your income alongside that benefit, you need dividend payers whose cash flow can support a steady, rising payout. Each of the three stocks below yields more than the COLA figure, and each passed a coverage check before yield was considered.
First, a COLA and a yield measure different things, as a COLA is a percentage increase on a benefit you already receive. On a hypothetical $2,000 monthly check, a 3.6% adjustment adds $72 a month. A dividend yield is the cash a stock pays each year divided by its current share price, and a yield alone can’t tell you whether the payout will grow or even last. So the COLA works here as a reference point for how fast a retiree’s income is rising, and each dividend still has to be judged on whether the business can pay for it.
PepsiCo: Global Brands Funding a Dividend That Has Risen Every Year in the Record
PepsiCo (NASDAQ:PEP | PEP Price Prediction) sells snacks, foods and drinks in more than 200 countries and territories. Its brands include Pepsi, Lay’s, Doritos and Gatorade. At $136.28, the stock yields 4.13%. Part of that yield comes from a falling share price. The stock is down 6.41% over the past year and trades well below its 52-week high of $166.41.
Dividend safety: PepsiCo paid $5.80 per share in dividends against trailing EPS of $7.95, a payout ratio of about 73% of earnings. Free cash flow coverage is lower. The free cash flow yield of 4.15% roughly matches the dividend yield, so the business generates about enough free cash to pay its dividend. Management plans to return $8.9B to shareholders this year, including $7.9B in dividends. It is also targeting free cash flow conversion of at least 80%. Debt is manageable: operating earnings cover interest expense 10.26x.
Track record: PepsiCo’s dividend history goes back to 1999, and the quarterly payout steps up every year in that record. The latest quarterly payment is $1.48, up from $1.4225. That sets the forward annual dividend at $5.92.
Bull case: International growth is making up for a weak U.S. snack business. In the latest quarter, adjusted EPS of $2.34 beat the $2.30 estimate. Revenue rose 5.6% to $25.27B, and LatAm Foods grew 14%. People keep buying chips and sports drinks in a downturn, which gives retirees a steady source of cash to lean on.
Risk: North American snacks remain under pressure. Core operating profit in that segment fell 12%, and rising input costs led management to cut its core EPS growth outlook to 2.5% to 3.5%. Slower earnings growth could mean smaller dividend raises.
Realty Income: Monthly Checks With an A-Rated Balance Sheet Behind Them
Realty Income (NYSE:O) is a real estate investment trust that owns over 15,500 properties. It rents them to 1,798 clients across 92 industries, mostly on long-term net rents where tenants cover taxes, insurance and maintenance. At $57.05, the stock yields 5.43%. That yield isn’t the result of a falling price, since the shares are roughly flat over the past year (down 0.05%).
Dividend safety: For a REIT, adjusted funds from operations (AFFO) is the right measure of coverage, because accounting depreciation makes GAAP earnings look smaller than the cash coming in. Second-quarter AFFO was $1.09 per share, against $0.8115 in dividends paid. That works out to a payout of about 74% of AFFO. The free cash flow yield of 7.18% sits above the dividend yield. The balance sheet has A-range credit ratings from all three major agencies: Moody’s A3, S&P A- and Fitch A. Net debt is 5.4x adjusted EBITDAre. Occupancy stands at 98.8%.
Track record: Realty Income has raised its dividend for 115 consecutive quarters and is part of to the S&P 500 Dividend Aristocrats index. Its dividend record shows a payment every month from 1999 onward, with the payout rising from $0.17 to $0.2715. The forward annual dividend is $3.258.
Bull case: Monthly payments match how retirees pay their bills. We rounded up seven of our favorite monthly payers in a free report here. The company keeps adding properties: it invested about $2.6B in the second quarter at a 7.3% initial cash yield. On re-leased properties, it recovered 102.7% of prior rent. A $6B hyperscale data center joint venture adds a new source of rent alongside retail and industrial.
Risk: Tenant credit quality. About 65.7% of annualized base rent comes from tenants without investment-grade ratings. A run of retail bankruptcies would put pressure on AFFO.
Verizon: The Biggest Yield in the Group, Covered Comfortably by Free Cash Flow
Verizon (NYSE:VZ) provides wireless and broadband service to roughly 94.1 million postpaid phone connections and about 17.1 million broadband connections. The stock yields 6.18%, which puts it in ultra-high-yield territory. The yield is high even after a strong run: the shares are up 25.36% over the past year to $45.07. The stock trades at about 9x forward earnings.
Dividend safety: Free cash flow reached $6.43B in the second quarter, up 27.1% from a year earlier. The quarterly dividend of $0.7075 across 4,154,775,000 shares costs about $2.94 billion, roughly 46% of that quarter’s free cash flow. That leaves room for buybacks: Verizon had bought back $3.5B of stock through the second quarter. Net unsecured debt is 2.5x adjusted EBITDA.
Track record: Verizon’s quarterly payout has risen every year in its dividend history from $0.46 in 2009 to the current $0.7075. The forward annual dividend is $2.83.
The bull case: the core business is gaining strength. Verizon gained 184,000 postpaid phone customers, compared with a loss of 9,000 a year earlier. Postpaid phone churn, the share of customers who leave, improved to 0.92% from 0.97%. Adjusted EBITDA margin expanded to 40.1%. The Frontier Communications acquisition raised fiber connections to about 10.9M. Adjusted EPS of $1.30 beat the $1.27 estimate. Phone and internet bills get paid in any economy, and that is what funds this dividend.
Risk: Debt. Total unsecured debt stands at $136.5B. Leverage rose to 2.5x from 2.2x at the end of last year after the Frontier deal. Higher refinancing costs could reduce the cash available for dividend raises. Verizon appears on Barron’s list of stocks to watch this week. That makes its next quarterly update the first check on that leverage trend.
Income That Grows Alongside Your Benefit
These three names suit retirees who want income from three different sources: everyday consumer brands, monthly rent checks and telecom bills. Realty Income offers the strongest coverage, with an A-rated balance sheet and monthly payments. Verizon has the highest yield and the largest free cash flow surplus. PepsiCo has the longest annual raise record in its dividend history, though its free cash flow covers the payout more narrowly than the other two. Together, they give a portfolio cash payouts that each business can fund, working alongside a Social Security check that rises with the COLA.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
