Few companies are as proven and enduring as the food and beverage giants PepsiCo (NASDAQ: PEP). Companies have been doing it for decades, chasing investors with dividends and building wealth over generations. The stock has steadily faded in recent weeks and is nearing a 52-week low.
Years of inflation have caused consumers to fight higher grocery prices, and sentiment is down. Investors have seen such companies McDonald’s cited weaker consumer spending as a headwind for business.
So, should investors stay away, or is now the time to buy stocks?
Here are four reasons long-term investors should buy stocks like there’s no tomorrow.
1. best in class brand
PepsiCo’s world-class food and beverage brands have been a pillar of its strength, creating decades of growth and wealth for its shareholders. The stock price has appreciated more than 10,000% in its lifetime, and the dividend has increased more than 5,300%. PepsiCo brands include beverage headliners like Pepsi, Mountain Dew, Gatorade, and Lipton, while food products include names like Doritos, Cheetos, Lay’s, Quaker, and more.
Dominating the grocery aisle means that PepsiCo’s products get top spot in supermarkets and pricing power because consumers will generally buy what they know and like. In addition, food and beverage products small ticket items; PepsiCo can get away with a few cents in price because it doesn’t affect consumers’ budgets dramatically. Decades of population growth and price increases have consistently driven revenue to over $91 billion annually.
2. Still very dividend farmers
PepsiCo is a dividend dynamo because it deals and growth. Investors who buy today get a solid initial yield of 3.3%. On top of that, PepsiCo has raised its dividend by an average of 6.6% over the past five years. The latest 7.1% increase shows that management is confident in the company’s prospects. Remember, PepsiCo has raised its dividend for 52 consecutive years (the Dividend King), so maintaining dividend growth that beats inflation after all this time is impressive.
In particular, the dividend is guaranteed with a payout ratio of 66% of PepsiCo’s earnings in 2024. Profits are high enough that PepsiCo can pay dividends and still invest in the business or buy back shares. This consistent growth outpacing inflation is how stocks have done so well for so long.
3. Solid growth outlook
What matters most to investors is whether PepsiCo can continue to grow at a rapid pace. After all, this company, which sells packaged snacks and drinks, is now a $225 billion giant. Fortunately, PepsiCo’s growth formula still seems to have mojo.
The beauty of PepsiCo is that it has many growth levers. It chugs along while raising prices, selling more products to a growing global population, and acquiring and launching new product brands. Some of PepsiCo’s recent hits include newer beverage brands such as Bubly and Starry. It has also invested in the energy drink industry by acquiring Rockstar in 2020 and entering into a major collaboration with Celsius in 2022.
Management is currently guiding for 4% year-over-year organic revenue growth in 2024 and a 7% increase in earnings per share through 2023. Analysts looking further out expect more of the same. Consensus forecasts call for average earnings growth of more than 7% annually for the next three to five years.
4. Star business at the same price
Sometimes the market does the wrong thing. Weaker consumer spending could put price pressure on PepsiCo, and the stock market appears to be pricing in the stock. The stock is now down more than 17% from its high. PepsiCo has averaged a P/E ratio of nearly 26 over the past decade, and the stock has now fallen below 20 times estimated earnings this year:
Is the stock worth selling at a discount? While PepsiCo may be feeling the pressure as consumers struggle, it’s hard to argue that the business is worse off, especially when the outlook remains consistent with the company’s past performance. Do you want a stock discount? That has happened. Barring an unexpected collapse in the business, PepsiCo’s stock looks like it’s trading very well at its current price.
To implement Buffett’s advice, investors should not hesitate to buy a good business like PepsiCo at the right price.
Should you invest $1,000 in PepsiCo right now?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Celsius. The Motley Fool has a disclosure policy.
4 Reasons to Buy PepsiCo Stock Like There’s No Tomorrow This post was originally published by The Motley Fool
