2 Under-the-Radar Consumer Staples Stocks With Market-Beating Potential

The consumer staples industry is large and varied. There are always some consumer staples companies that are attracting a great deal of interest on Wall Street while others languish in relative obscurity. Two companies that are flying under the radar today are actually industry giants: PepsiCo (NASDAQ: PEP) and Hershey (NYSE: HSY).

Don't let the downbeat view of these two reliable dividend stocks dissuade you from buying them. Here's why they both have market-beating potential over the long term.

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PepsiCo has stumbled, but it hasn't fallen

PepsiCo is the easier company to justify buying right now. The big problem with the business is that growth on the top and bottom lines has slowed from the rapid pace experienced during the post-pandemic inflation surge. Essentially, PepsiCo can no longer pass on outsized price increases, which has been true for companies throughout the food space.

But there's a caveat here. In 2024, PepsiCo's organic revenue growth was 2% and its adjusted earnings rose by 9%. In 2025 it's calling for similar performance, with low-single-digit growth in organic sales and mid-single-digit growth in adjusted earnings.

Image source: Getty Images.

While not as good as a few years ago, those are respectable numbers in the consumer staples sector, which is pretty much known for slow and steady growth over time. So it isn't like PepsiCo has suddenly turned into a poorly run company. It's just as attractive a business as it was before, only now it has a historically high 3.5% dividend yield.

That lofty yield should be very attractive to dividend investors, given that it's backed by over 50 years' worth of annual dividend increases. Indeed, you don't earn Dividend King status by accident; it requires a strong business plan that's executed well through good times and bad.

As for the core business, PepsiCo is one of the largest beverage companies on the planet, it's the largest producer of salty snacks, and it has a sizable packaged-food business too. It's one of the most diversified food makers you can buy, and it's large enough to act as an industry consolidator. Moreover, it has a global distribution network, solid marketing chops, and research and development skills that match any of its peers.

Most investors should see the current pullback in the share price, of roughly 20%, as a chance to buy a stock that's likely to become attractive again. That could happen quickly if -- perhaps when -- there's a bear market and Wall Street rushes into companies perceived as safe havens.

Hershey has fundamental issues and the leeway to deal with them

There are two major issues facing Hershey today. First, prices have rocketed higher for cocoa, an important ingredient for the iconic chocolate business. Second, new weight loss drugs could cause consumers to stop buying sugary sweets. This is why the company is deeply out of favor on Wall Street, with its stock down around 33% from recent highs.

Neither of these problems is likely to be permanent. Cocoa is a commodity and high prices will lead to changes in production that should, over time, bring prices down. In the meantime, Hershey will raise prices and focus on controlling costs.

As for the new weight loss drugs, we're still in early days, and humans have a really bad track record when it comes to sticking to long-term medication regimens. Since chocolate is an indulgent but cost-effective treat, it's hard to believe that consumers will just stop buying this beloved confection.

The price drop, meanwhile, has pushed the dividend yield up toward historical highs at about 3%.

The big story here, however, is a bit more obscure. The largest shareholder of Hershey stock is The Hershey Trust, which controls around 79% of the voting power in the company. The Hershey Trust uses the dividends it collects from Hershey to fund its philanthropic efforts, so it has a vested interest in ensuring that the company is operated in a way that ensures reliable and growing dividends. Hershey isn't likely to make any rash decisions that will hurt investors because its largest investor won't be pleased by that outcome. So management has the time to make good long-term decisions.

With its historically high yield, now could be a good time to lock in a position in this conservatively run confectionery giant. And, as with PepsiCo, the turnaround could be swift if the broader market hits a patch of turbulence that sends investors hunting for cover.

HSY data by YCharts.

There are no guarantees, but Wall Street is filled with opportunity

Will the stocks of PepsiCo and Hershey suddenly turn around and rush higher? There's no way to tell, but over the past month or so, a period filled with market uncertainty, both have outperformed the S&P 500 index.

This could be just the beginning, given that both are still well below recent highs. And since each of these consumer staples makers is offering up historically high yields, they remain very attractive investments for long-term dividend investors. Don't wait too long if you're interested, though -- this opportunity could be fleeting.

Should you invest $1,000 in PepsiCo right now?

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