Count on Dividend King Pepsi (PEP) for Stability in a Volatile Market

TipRanks

Sat, Jan 18, 2025, 5:01 PM 5 min read

The stock market has been volatile to kick off 2025, with many top tech stocks well off their highs as some investors question their lofty valuations and an uncertain economic environment. However, even in an uncertain market, there are still many things investors can rely on, like beverage and snack company Pepsi (PEP) and its steady dividend growth. I’m bullish on Pepsi stock based on its attractive dividend yield, its long and proud history of consistently growing its dividend for many decades, its modest valuation, and the durable demand for its products.

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Favorable Valuation

There’s little question Pepsi is a blue-chip stock since it is an iconic American company with a name and logo that are instantly recognizable to billions of people around the world. However, that doesn’t mean the stock trades at a premium, blue-chip valuation.

In fact, after declining 12.8% over the past year, shares of Pepsi fetch just 17.8 times 2024 full-year earnings estimates and an even cheaper 16.9 times December 2025 consensus earnings estimates. These numbers make Pepsi significantly cheaper than the broader market, as the S&P 500 (SPX) currently trades for 24.8 times earnings. Interestingly, Pepsi is also cheaper than its archrival Coca-Cola (KO), which trades for 20.9 times 2025 earnings estimates.

This inexpensive valuation should give Pepsi a strong degree of downside protection in a volatile market and leave plenty of room for a multiple expansion in a bullish market environment, especially since the stock has frequently traded at higher P/E ratios over the years.

Over Five Decades of Dividend Growth

In addition to this inexpensive valuation, Pepsi is a top dividend stock. It starts with the dividend yield — Pepsi currently yields an enticing 3.7%, which is nearly triple the S&P 500’s 1.3% yield.

Beyond the above-average yield, Pepsi is an appealing dividend stock based on its multi-decade commitment to paying and growing its dividend. Pepsi has paid dividends to its shareholders for 52 years in a row, and it has increased the size of its payout in each of these 52 years. This consistency makes Pepsi a “Dividend King,” placing it in the rare company of stocks that have raised their dividend payouts for at least 50 years in a row. Other notable Dividend Kings include Coca-Cola, Target (TGT), Johnson & Johnson (JNJ), AbbVie (ABBV) and Walmart (WMT).

In a market where few things are certain, it’s nice to be able to ‘set it and forget it’ with a Dividend King like Pepsi that increases its dividend payout like clockwork every year.

More than Just Soft Drinks

There is some concern among investors that consumer demand for carbonated soft drinks will fall in developed markets like the United States, but Pepsi is fairly well-positioned for this risk. Carbonated soft drinks have plenty of runway for growth in international and emerging markets. Plus, Pepsi’s brand portfolio features plenty of beverage options for developed-market consumers looking for healthier beverages, like Bubly sparkling water, Pure Leaf iced tea, and Tazo tea.

Lastly, it’s important to remember that there is much more to Pepsi than just beverages — it is also the number one player in the lucrative savory snacks market, worth over $250 billion annually, with leading brands like Doritos, Cheeto’s, Lay’s, Fritos, and Ruffles all in its arsenal.

Late last year, the company also announced a deal to acquire the 50% of Sabra (best known for its hummus as well as other dips and spreads) that it didn’t already own, as well as a $1.2 billion deal for tortilla chip maker Siete, illustrating that the company has its sights set on long-term growth in this area.

Defensive Positioning

Another nice thing about Pepsi is that it is a consumer staples company making products that enjoy durable demand from consumers. Even in a challenging macroeconomic environment, most customers who enjoy Pepsi or Diet Pepsi will continue to pick it up on their weekly grocery trips. In an inflationary environment, consumers may be forced to delay or forgo bigger ticket purchases, but a six-pack or case of Pepsi or Diet Pepsi still represents just a small percentage of their budget that they are unlikely to cut.

The same can be said about the aforementioned savory and salty snacks that Pepsi sells or staples like Quaker Oats oatmeal.

Is PEP Stock a Buy, According to Analysts?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on PEP stock based on four Buys, three Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 9% decline in its share price over the past year, the average PEP price target of $167.86 per share implies 13.6% upside potential.

See more PEP analyst ratings

Count on the King

I’m bullish on Pepsi based on its attractive, above-average 3.7% dividend yield and its long and proud history of growing its dividend payout for over five decades. In a market that runs hot and cold and where trends can be fleeting, this type of long-term reliability is something to celebrate.

I’m also constructive on Pepsi stock based on its below-average valuation–which should give investors decent downside protection and plenty of exposure to the upside–and its strong business of selling consumer staples with durable demand. This gives the stock a strong defensive backbone.

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