PepsiCo is an iconic consumer staples company that doesn’t go on sale very often. It is on sale right now.
If you have ever looked at PepsiCo (PEP -1.99%) and wished the stock price was lower, then you need to examine it again right now. While shares are only about 10% below their high water mark, other metrics suggest that this iconic consumer staples maker is attractively priced today.
A good price for a great company is an awesome reason to buy PepsiCo stock like there’s no tomorrow. Here is a slew of reasons to jump at the chance you have to buy today.
1. PepsiCo is a strong No. 2 in soda
PepsiCo’s namesake brand plays second fiddle to Coca-Cola‘s namesake — year in, year out. Don’t take this to mean that Pepsi is somehow a bad brand. Being a strong No. 2 is a very good industry position to be in. But PepsiCo isn’t just Pepsi. It owns a host of large beverage brands, from Gatorade to Muscle Milk. This company is a beverage powerhouse with the size and reach to compete with even the biggest peer.
Image source: Getty Images.
2. PepsiCo is a strong No. 1 in salty snacks
In some ways PepsiCo’s name makes sense, but in others it seems like it is hiding something very big. That big thing is the fact that PepsiCo owns Frito-Lay, which, unlike Pepsi, is the undisputed leader of its category. That’s right, PepsiCo is the largest player in the salty snack market. With brands that range from Lays to Rold Gold, the company’s snacks are a must-have on the shelves of retailers from grocery stores to convenience stores.
3. PepsiCo is also a big packaged food maker
As if being No. 1 in salty snacks and No. 2 in soda wasn’t enough, PepsiCo also owns Quaker Oats and other notable packaged food brands. To be fair, there are other food makers with far more impressive brand portfolios. But when you add up all of what PepsiCo offers, you come out with a company that has an incredibly diversified portfolio of brands that people buy every single day. That’s exactly what you want to find when you are looking at consumer staples stocks.
4. PepsiCo is a Dividend King
Just having notable brands doesn’t tell you whether a company is well-run. However, the fact that PepsiCo is a highly elite Dividend King with 52 years of annual dividend increases under its belt is a big hint. A company that’s poorly run couldn’t increase its dividend year in and year out for over five decades. Keep in mind that the past 50 years includes some really hard times, like the raging inflation of the 1970s and the Great Recession between 2007 and 2009.
Sure, PepsiCo’s financial results have waxed and waned over time, just like any other company’s, but management has kept the business growing through it all. Notably, it has also rewarded investors all along the way. That’s the type of stock you want to have in your portfolio.
5. PepsiCo has a large dividend yield
Speaking of dividends, the S&P 500 index is currently yielding a miserly 1.2%. The average consumer staples stock is currently yielding 2.6%, using the Consumer Staples Select Sector ETF as a proxy. PepsiCo’s dividend yield is roughly 3%. Can you find higher-yielding stocks? Sure! But PepsiCo’s yield still looks fairly attractive on both an absolute basis and compared to its broader sector.
6. PepsiCo’s dividend yield is also historically high
But wait, there’s more dividend yield data to check out here. PepsiCo’s dividend yield is near the high end of its historical range. To be fair, the yield has been higher. It has also been much lower. Using yield as a rough gauge of valuation, PepsiCo looks fairly priced to cheap today, which is a darn good reason to buy it.
PEP Dividend Yield data by YCharts.
7. PepsiCo’s valuation looks fair to cheap in other ways, too
Most investors don’t just use one valuation metric and call it a day. That’s why it’s notable that PepsiCo’s price-to-sales ratio is below its five-year average. The price-to-earnings ratio is roughly equal to its five-year average. The price-to-book value ratio is below the longer-term average, and the price-to-cash flow ratio is below its five-year average, too. Three out of four of the more traditional valuation metrics suggest that PepsiCo is cheap today.
The one metric that isn’t below the five-year average is basically at the five-year average, which hints at a fair price. Fairly priced to cheap is probably a good entry point for a Dividend King with an attractive yield and industry-leading positions in key consumer staples markets.
Now is the time to look at PepsiCo
Hindsight is the only way to know when it was the perfect time to buy a stock. Unfortunately, investing requires looking to the future. What you do know about PepsiCo, however, is pretty compelling. It’s an industry leader across multiple consumer staples categories. It has an attractive dividend and dividend yield. And at worst, the stock looks like it is reasonably priced today, but more likely it is a bit on the cheap side. Most investors will probably see that combination and believe that the time is right for buying PepsiCo stock.
