My 3 Favorite Dividend Stocks to Buy Right Now

Key Points

• Realty Income is a boring and reliable dividend stock with a lofty 5.3% yield.

• PepsiCo is a Dividend King that's fallen on hard times, but the business, and the dividend backing its 4% yield, should survive.

• Hershey is a turnaround story with a historically high 2.8% yield for those willing to take some risks.

• 10 stocks we like better than Realty Income ›

The S&P 500 index (SNPINDEX: ^GSPC) is near all-time highs again, with some on Wall Street worrying that the market's valuation has become stretched.

But don't despair -- if you look past the major averages, you can still find attractive dividend stocks. Three that are favorites of mine today are Realty Income (NYSE: O), PepsiCo (NASDAQ: PEP), and Hershey (NYSE: HSY).

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Here's why.

Image source: Getty Images.

1. Realty Income is for boring investors

I'll admit it, I love boring dividend stocks. That probably makes me a boring person. I'm good with that, especially when I get to collect a 5.3% dividend yield from an industry-leading business that has increased its dividend annually for 30 consecutive years. And that's just the highlight real when it comes to Realty Income.

Realty Income is the largest net-lease real estate investment trust (REIT) by a wide margin, owning more than 15,600 properties. It also has an investment grade-rated balance sheet. These two facts give it advantaged access to capital markets for raising growth capital, making it easier to ink profitable property deals. On top of that, management has purposely worked to diversify the business by property type and geography (it operates in both the U.S. market and across Europe), so that it has plenty of avenues to grow.

Realty Income is so large that it can't grow quickly, but slow and steady is a pretty good outcome when you have such a high yield. And slow and steady is also likely to make conservative income investors very happy to join me in owning this well-run REIT.

2. PepsiCo is a small step up on the risk scale

Another major holding I have that I continue to find attractive is PepsiCo, the second most important non-alcoholic beverage company in the world. But it is so much more than a drink maker, given that it is also the largest salty snack company in Frito-Lay and a major player in packaged food via Quaker Oats. All in, it is probably one of the most diversified consumer staples food stocks you can buy.

It is also a Dividend King, with more than five decades worth of annual dividend increases behind it. Yes, the business is underperforming key peers right now, which is why the 4% dividend yield is near the high end of the stock's historical yield range. And that's the big opportunity, since achieving Dividend King status suggests strongly that PepsiCo has what it takes to muddle through hard times when they come along.

Although the company has long focused on taking a long-term approach, there's an activist investor involved right now. That could prod management to work more quickly on business changes that get growth back on track. And that means buying sooner rather than later could be a wise choice with PepsiCo's stock.

3. Hershey's high yield comes with structural issues

Hershey is going to be the hardest stock to love on this list. This food maker is built around its chocolate business. Cocoa is a key ingredient in making chocolate. Cocoa prices have soared in recent years thanks to supply-and-demand issues and crop quality concerns. Given the fact that cocoa comes from trees, there isn't a quick fix to the problem.

Hershey is raising prices and cutting costs. This is the normal way consumer staples companies deal with input inflation. But investors are worried that the shocking rise of cocoa prices will upend Hershey's business, leading to a historically high yield of around 2.8% today.

My belief is that consumers love chocolate and are unlikely to stop buying it. The confection is an affordable luxury, even after recent price increases. And commodity prices have a way of self correcting, as high prices usually bring in new investment. So even though the cocoa market dislocation may take some time to fix, I think it will eventually be fixed.

And the linchpin here is that The Hershey Trust, a philanthropic organization, effectively controls Hershey. That allows the company to make long-term decisions without having to worry about the repercussions of Wall Street and its short-term focus.

I like reliable dividend stocks, and Hershey has a long history of supporting a generally rising dividend. The Hershey Trust is, basically, looking for the same things I am looking for. I'm happy to invest alongside this massive insider and you might want to do so, too.

Time for some deep dives

If you are a dividend investor like me and you are worried about the lofty levels of the market, well, join the crowd. But just because the S&P 500 index is near all-time highs doesn't mean you won't be able to find attractive dividend stocks. It just means you have to look a little harder. Realty Income, PepsiCo, and Hershey are three of my favorite stocks right now and I believe each one is worth a closer look.

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Reuben Gregg Brewer has positions in Hershey, PepsiCo, and Realty Income. The Motley Fool has positions in and recommends Hershey and Realty Income. The Motley Fool has a disclosure policy.