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PepsiCo: A Refreshing Investment Choice PepsiCo: A Refreshing Investment Choice

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You’ve probably sipped a refreshing Pepsi or delved into the crunchy goodness of Frito-Lay snacks, regardless of where you reside. The global footprint of PepsiCo (NASDAQ: PEP), has made it an iconic household name, rivaling the status of industry titan Coca-Cola. For the discerning long-term investor seeking growth and income, this salt-snack powerhouse and second-ranking soda producer deserves a prominent place in their portfolio. Here’s why.

PepsiCo’s Long Track Record Spells Success

First and foremost, it’s crucial to acknowledge that a company with a massive $220 billion market cap won’t offer the thrill of a new, fast-growing entity. It’s firmly established, well beyond the phase of rapid expansion. However, this doesn’t make PepsiCo a subpar investment choice; rather, it’s a mature and sturdy one. Investors should consider acquiring it when reasonably priced, and hold onto it for the long haul.

One of the most impressive feats defining the company’s long-term success shines through its dividend history. As a distinguished Dividend King, PepsiCo boasts over fifty years of annual dividend raises—a feat not achieved haphazardly. It necessitates unwavering excellence in executing strategies during both robust and challenging economic climates. Over the past decade, the average yearly dividend growth stood at approximately 8%, showcasing steady and reliable returns over time.

However, it’s worth noting that the current dividend yield stands at 3%, surpassing the yields offered by S&P 500 Index funds. Yet, this figure may not completely enthrall dividend-focused investors. In essence, PepsiCo emerges as an appealing growth and income stock. Nonetheless, investors fixated on maximizing either growth or income may find their expectations somewhat deflated.

Why PepsiCo is an Alluring Choice Today

If you’re already a PepsiCo shareholder, the recent downward swing in stock prices, marking a 15% retreat from the 52-week peak, might stir some concern. However, there’s no cause for alarm. Despite surging inflation, PepsiCo’s recent financial performance remains robust. In 2023, the company achieved a sizeable organic revenue growth of 9.5%, primarily bolstered by price hikes to counter escalating expenses. Although volumes dipped slightly, this is an anticipated consequence when consumer-staples firms raise prices, as consumers gradually adjust to the heightened prices.

If you don’t currently hold PepsiCo shares, this could be an opportune moment to dive in. While the dividend yield has been higher in the past, the downward adjustment in stock price has nudged the yield towards the upper end of its historical range, indicating a potential bargain. While not a resounding buy, current pricing appears fair to mildly discounted.

These assertions are supported by more traditional valuation metrics such as price-to-earnings, price-to-sales, and price-to-book value ratios, all of which either align with or fall below the five-year averages. Although not dramatically low, this, coupled with the dividend yield, suggests that investors would be acquiring shares at a fair or even discounted price. This is a favorable outcome when considering a seasoned Dividend King performing commendably in a challenging environment.

A Word of Prudent Advice

PepsiCo isn’t presenting itself as an outright bargain, meriting truckloads of investment. Such well-managed companies seldom trade at steep markdowns. For investors seeking a reliable mix of growth and income, PepsiCo presents an enticing option today. Waiting for a cheaper entry point might mean missing the boat on purchasing an exceptional company at what seems to be a rather equitable price.

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

Before diving into PepsiCo stock, consider this:

The Motley Fool Stock Advisor analyst team recently unveiled their picks for the 10 best stocks that they believe could yield substantial returns in the years ahead – and PepsiCo didn’t make the cut. Since 2002, the Stock Advisor service has outperformed the S&P 500 by more than threefold*.

Explore the 10 stocks

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Reuben Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.