2 Dividend Stocks to Buy in February and Hold for the Long Term

Starbucks is showing signs of a turnaround under CEO Brian Niccol with global comparable-store sales up 4% year over year, an $0.62 quarterly dividend ($2.48 annual), and FY EPS guidance of $2.15–$2.40, supporting a forward dividend yield of about 2.51% as the stock is up 18% YTD. PepsiCo reported improved Q4 results, flat full-year adjusted EPS at $8.14 but Q4 EPS +11% YoY, generated $7.6 billion in trailing-12-month free cash flow (free cash flow +19% over five years as revenue rose 31%), and plans a 4% full-year dividend increase to $5.92 in 2026 raising the forward yield to ~3.52% while analysts lift long-term earnings growth to roughly 6% and management targets productivity savings. Both companies’ cash-flow-backed dividends and signs of sales momentum make them highlighted income-oriented ideas for investors seeking yield and steady dividend growth.

Analysis

Market structure: Starbucks (SBUX) benefits if Niccol sustains +3-5% comparable-store-sales (comps) growth over the next 2 quarters; that would restore pricing power and justify dividend raises versus current EPS guidance ($2.15–$2.40) and a $2.48 annual dividend (payout >100% at midpoint). PepsiCo (PEP) is a defensive winner — 60-year dividend, forward yield ~3.52%, trailing FCF ~$7.6bn — which gives it flexibility to outcompete smaller snack/beverage peers on pricing and promotion through 2026. Winners: branded staples, packaging suppliers; losers: lower-margin independent cafes, commodity-sensitive private-label producers.

Risk assessment: Tail risks include a recession-driven traffic shock (drop in comps >7% for 2 quarters), a coffee bean price spike (+20% YoY), or execution failure on Niccol’s remodels that forces dividend suspension/flattening at SBUX within 12–18 months. Short-term (days–weeks) risks center on earnings/corp guidance; medium-term (3–12 months) on commodity and labor cost inflation; long-term (2–4 years) on structural shifts to at-home consumption. Hidden dependency: Starbucks’ dividend is contingent on a turnaround; Pepsi’s dividend depends on productivity savings delivering ~mid-single-digit EPS growth.

Trade implications: Tactical positions — favor PEP as core long (income + low volatility) and a smaller, event-driven exposure to SBUX. Implement pair trade: long PEP / short SBUX sized 2:1 to express defensive vs discretionary spread; rebalance if SBUX comps sustain >3% for two quarters. Options: sell 3–6 month covered calls on PEP to harvest yield; buy 6–12 month SBUX call spreads to play turnaround with defined risk, or hedge SBUX exposure with 3-month puts if comps slip below 0%.

Contrarian angles: Consensus underweights the payout-risk at SBUX — dividend >EPS midpoint implies either share-count reduction or dividend compression if turnaround stalls, so downside is asymmetric. Conversely, the market may underprice Pepsi’s ability to convert productivity savings into >6% EPS CAGR; a 10% pullback in PEP could be a buy-with-income opportunity. Historical analog: successful CEO-led restaurant turnarounds (e.g., CMG under new management) required 12–24 months of sustained comp recovery before multiple expansion; the same timeline is plausible here. Unintended consequence: aggressive store remodels raise capex and temporarily compress free cash flow by 5–10% in the near term.

Key Decisions for Investors

• Establish a 3% portfolio long position in PEP within 30 days for income and stability, size to be increased to 5% on any pullback >=10% or if 2026 guidance confirms the $5.92 dividend and productivity targets.
• Initiate a tactical 1–2% long SBUX position via a 9–12 month bull call spread (limit cost to <1.5% of portfolio) to capture upside from turnaround execution; close if two consecutive quarters of comps fall below 0% or if EPS guidance misses the midpoint by >10%.
• Implement a relative-value pair: long PEP / short SBUX at a 2:1 notional ratio to express defensive bias; reduce or flip after two consecutive quarters where SBUX comps >+3% and margin expansion is evident.
• Harvest income on PEP by selling 3-month covered calls targeting ~+2–3% OTM to boost yield; alternatively, sell cash-secured puts at ~3–5% below current price to accumulate at a lower cost basis over the next 60–90 days.
• Risk-control: Buy 3-month SBUX puts sized to cover 50% of the SBUX exposure if quarterly comps slip to <=0% or coffee commodity futures rally >15% within 90 days; reassess exposures quarterly.