UBS Sees Defensive Dividend Stocks Ready to Rally

UBS has identified PepsiCo and McDonald's as attractive defensive dividend stocks for investors seeking opportunities beyond the technology-driven rally. According to a report, these low-risk companies offer a market-implied yield of about 4.4%, compared with roughly 1.4% for higher-risk stocks.

The report highlighted that defensive businesses now trade at valuation levels that compare favorably with higher-risk stocks. UBS analyst Sean Burns noted that similar valuation gaps in the past have often been followed by improved returns from low-volatility shares.

PepsiCo is set to release its fiscal second-quarter earnings on July 9, and analysts see revenue of $23.98 billion with earnings of $2.21 per share. The average analyst price target of $166.82 implies an 18% upside from the stock's last closing price.

McDonald's also delivered first-quarter earnings and revenue ahead of expectations. UBS has previously said the restaurant chain is positioned to capture additional market share through its focus on value offerings, menu development, and marketing efforts across both domestic and international markets.