Key Takeaways
- PepsiCo cut its 2026 core EPS growth outlook to 2.5% to 3.5% on Oct. 8, and its stock yields 4.7% against Target’s 3.0%.
- Target’s dividend used 46% of its free cash flow over the twelve months to Aug. 1, 2026, against 75% for PepsiCo over the twelve months to Sept. 16, 2026.
- PepsiCo’s dividends used 100% of its free cash flow in both fiscal 2024 and fiscal 2025.
- Target’s latest dividend raise was 1.8%, and management is aiming for a 40% payout ratio over time.
PepsiCo (PEP) cut its 2026 core EPS outlook on Oct. 8, to growth of 2.5% to 3.5% from the low end of 5% to 7%. For anyone holding it for the 4.7% yield, that’s a reason to check the cash behind the check.
Then there’s Target (TGT). It yields just 3.0%, but its dividend grew 11.0% per year from the year ended January 2021 to the year ended January 2026.
If you could hold only one of them for the next 10 years, which would it be?
| Metric | Target (TGT) | PepsiCo (PEP) |
|---|---|---|
| Dividend yield | 3.0% | 4.7% |
| Annual dividend | $4.64 | $5.92 |
| Dividend growth, 5 years | 11.0% a year (years ended Jan. 2021 to Jan. 2026) | 6.9% a year (fiscal 2020 to 2025) |
| Cash dividend payout ratio (TTM) | 46% | 75% |
| Net debt/EBITDA | 1.5x | 1.9x |
| Interest coverage | 12.7x | 14.9x |
| Forward P/E | 16.7x | 15.0x |
Source: TIKR and StockAnalysis, Oct. 9, 2026. TTM to Aug. 1, 2026 for Target and Sept. 16, 2026 for PepsiCo.
Target has room, and good reasons to raise slowly
Target’s business is moving in the right direction. Net sales rose 5.3% to $26.5 billion in the quarter ended Aug. 1, 2026, compared with the same quarter a year before.
The dividend looks well covered right now. Over the twelve months to Aug. 1, 2026, the company paid $2.07 billion in dividends out of $4.46 billion of free cash flow, a comfortable 46%. The longer record is bumpier, though, with free cash flow falling from $7.88 billion in the year ended January 2021 to $2.84 billion in the year ended January 2026 and dipping below zero in between, while dividends paid rose from $1.34 billion to $2.05 billion…
That left a tighter 72% in the latest full year.
Management puts the business first, then aims to “support the dividend and build on our more than 50-year record of annual increases,” then buy back shares. It’s also balancing “our long-standing commitment to the dividend with our goal of moving towards a 40% payout ratio over time.” The latest raise fits that goal: 1.8%.
The main risk is spending. Target expects capital spending of about $5 billion this fiscal year, and the business comes before the dividend.
PepsiCo pays more from a thinner cushion
Where Target is holding its raises back, PepsiCo’s dividend has grown faster than the cash behind it. Its free cash flow was $7.62 billion in fiscal 2016 and $7.67 billion in fiscal 2025, while dividends paid rose from $4.23 billion to $7.64 billion…
That’s a risky 100% of free cash flow in each of fiscal 2024 and fiscal 2025.
Over the twelve months to Sept. 16, 2026, PepsiCo paid $7.88 billion of dividends from $10.47 billion of free cash flow, a better 75%.
International is carrying the business. Organic revenue rose 3.1% in the 12 weeks to Sept. 5, 2026, against the same quarter a year before. North America soft drinks are weak, and CEO Ramon Laguarta was blunt: “We’re not satisfied with the performance in the U.S.”
The risk is margins. With earnings growth guided this low, a dividend that has used all of free cash flow has little room to keep outrunning it.
So which dividend wins?
PepsiCo gets my dividend dollars for the next 10 years.
$10,000 at PepsiCo’s 4.7% yield pays $470 a year today. Growing at 6.9% a year, its five-year rate, it would pay about $859 in year 10. That’s an 8.6% yield on your cash, and about $6,472 over the decade. The same $10,000 in Target pays $300 today and, at 11.0% a year, about $764 in year 10, or about $5,005 in all. PepsiCo pays about $1,467 more, and at those rates, Target wouldn’t catch up until about 2039.
That also assumes Target keeps raising 11.0% a year. Its latest raise was 1.8%, and management wants a lower payout ratio over time. PepsiCo’s raises will likely slow too, given how tight its coverage has been. Still, starting at $470 instead of $300 is a lot of ground to give up.
This isn’t to say Target’s dividend isn’t safe. Free cash flow covers it about twice over, its debt is lighter, and management has put that 50-year record of raises right in its priorities. It’s just that over 10 years, I’d rather collect PepsiCo’s bigger check from day one.
Of course, PepsiCo’s structural cost cuts are still to come. If its free cash flow slips back toward the dividend, its raises would likely slow sharply, and Target would close the gap faster.
So what is PepsiCo stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what PepsiCo could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
