Key Points
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PepsiCo’s 4.2% yield is near last year’s historical high.
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You can buy PepsiCo for 16 times forward earnings.
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PepsiCo increased its payout in May. It has boosted its dividend for 54 consecutive years.
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There’s a rift between the two best-known carbonated beverage brands. PepsiCo (NASDAQ: PEP) is relatively out of favor. The beverage and salty snacks giant is trading 17% below its 52-week high and 28% lower than when shares peaked in early 2023.
Rival Coca-Cola is faring considerably better. Coca-Cola hit new highs this week. PepsiCo may be a laggard right now, but don’t dismiss it as a potential winning investment. There are a few good reasons to take a chance on PepsiCo this month. Let’s check them out.
1. PepsiCo’s yield is approaching a new high
Pepsi stock’s recent slide — and its long streak of boosting its annual distributions — has the shares trading at a 4.2% yield. It’s closing in on last year’s historic high. More downticks or another hike in the spring of next year should get it there.
May’s 4% increase in its quarterly payouts extends PepsiCo’s streak of annual hikes to 54 consecutive years. PepsiCo is royalty, as one of the country’s 57 Dividend Kings with more than 50 years of increased distributions. It’s one of just six Dividend Kings that are currently yielding more than 4%.
2. The stock is cheap in a pricey market
PepsiCo’s guidance calls for meager but positive revenue growth this year, with earnings growing slightly higher. The company behind more than just its namesake soft drinks — it’s also the owner of Frito-Lay, Gatorade, and Quaker Oats — trades at a discount to the market.
You can buy PepsiCo for just 16 times forward earnings. The beverage stock itself is growing much more slowly than that, but you should expect to pay a premium to collect a yield above 4% in today’s market. That current payout is higher than even the top money market funds.
3. Taking a closer look at fresh financials
PepsiCo released its latest financial results on Thursday morning. Its fiscal second quarter ended in mid-June, giving the beverage and food conglomerate the distinction of being one of the earliest reporters this critical earnings season. Its performance was a mixed bag.
The reported results seem great at first. Net revenue rose 6.4% for the quarter. Earnings per share more than doubled. Take it a step further, and organic revenue rose 2.4%. Core earnings per share climbed 4%, or just 1% on a constant currency basis. It was a slight beat on the top and a slight miss on the bottom. The stock initially ticked slightly lower ahead of the market open.
A silver lining is that its global organic sales volume through the first half of fiscal 2026 is PepsiCo’s highest in four years. It’s also not taking its recovery for granted, actively working on “restaging” its four main non-soda brands: Lays, Tostitos, Gatorade, and Quaker. The tweaks involve updating and upgrading the packaging, marketing, and even ingredients to appeal to a wider audience. It’s a gamble, but one worth taking to accelerate its slumbering organic and core results. With more than five decades of dividend hikes, investors will continue to be rewarded for their patience in the turnaround process.
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Rick Munarriz 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.
