2 Dividend Stocks Down 12% in 2026 to Buy in October and Never Sell

PepsiCo and Hershey shares are each down roughly 12%-12.5% year to date, lifting forward dividend yields to 4.63% and 3.65%, respectively. PepsiCo raised its dividend 4%, marking 54 consecutive annual increases, while first-half food and beverage volumes rose 3% and 2% and trailing-12-month free cash flow reached a record $9.2B. Hershey is recovering from cocoa-cost pressure, guiding for 3%-3.5% organic sales growth and 32.5%-35% adjusted earnings growth in 2026, supported by $2.1B of trailing-12-month free cash flow.

Analysis

PEP’s volume recovery is more strategically important than the current yield: it suggests price-pack architecture has reached a point where elasticities are normalizing, reducing the risk that topline stabilization requires further promotional spending. The offset is that lower realized pricing and mix could cap near-term gross-margin recovery, particularly if packaged-food input costs reaccelerate. Over the next 1-3 months, the relevant catalyst is whether management can sustain volume gains while holding organic-sales and operating-margin guidance; a beat driven only by buybacks or tax items should not rerate the shares.

HSY is the higher-beta recovery vehicle, but the implied earnings rebound depends materially on cocoa costs and hedging cadence rather than purely improved underlying demand. If cocoa futures remain lower into its procurement reset, gross-margin recapture could exceed consensus and drive a faster multiple recovery; if prices rebound before hedges roll, the expected earnings growth becomes vulnerable. Second-order beneficiaries of sustained cocoa disinflation include Mondelez (MDLZ) and Nestlé (NESN), while private-label confectionery loses relative price appeal as branded price gaps narrow.

Consensus is likely treating both as interchangeable defensive-income names after the drawdown. They are not: PEP offers a lower-volatility quality/cash-return setup but faces a structurally slower growth and margin-reinvestment tradeoff, whereas HSY is a commodity-cycle normalization trade with greater upside and greater estimate risk. Neither needs an immediate broad staples rerating; the investable catalyst is evidence that earnings revisions have bottomed, which should emerge over the next two reporting cycles.

Key Decisions for Investors

• Accumulate PEP on weakness for a 6-12 month defensive allocation; target a modest 8-12% total-return profile from yield plus a partial valuation recovery. Reduce if next earnings show renewed North American volume deterioration or operating-margin guidance is cut despite sales growth.
• Prefer HSY over PEP as a 3-9 month tactical long only if cocoa futures remain below the level embedded in current guidance and consensus EPS revisions turn positive. Potential upside is 15-20% on margin normalization; exit if cocoa rebounds materially or management signals that promotional investment offsets input-cost relief.
• Use a pair trade long HSY / short MDLZ in equal dollar amounts for investors seeking idiosyncratic exposure: HSY has greater earnings torque to cocoa normalization, while MDLZ provides a hedge against a generalized staples bid. Reassess after the next quarterly commodity-hedging disclosure.
• Avoid treating the dividend yields as standalone downside protection. Set monitoring alerts for retailer scanner data, promotional intensity, and commodity futures; these are more likely than payout policy to determine the next 1-3 month equity moves.