PEP is a high-yield dividend stock which has seen its dividend increased for the past 44 consecutive years. The company's business structure is well diversified and can handle the negative consumer shift against sugary drinks.
Its efforts to shift into a more health-conscious company and strategic acquisitions will pay off in the long run. PEP is an international food and beverage company that has been operating for over years. I believe that its stock's solid fundamentals and consistent dividend hikes make it a strong buy. PepsiCo is also more successful and is currently better positioned for the future compared to its main rival, Coca-Cola NYSE: Personally, I would be comfortable with holding PepsiCo's stock my entire life.
Only buy something that you'd be perfectly happy to hold if the market shut down for the next 10 years. One of the most compelling reasons to own PepsiCo's stock is its revenue and earnings growth potential. While I do not expect growth to be in the double digits every quarter, it should post modest levels of growth each quarter and continue to see yearly revenue and earnings growth.
This was driven mainly due to price increases, continued international sales growth, and the company's products becoming more healthy.
Last quarter, we saw volume increases in the South American, Asian, Middle Eastern and North African regions. These regions all have a lot of developing economies, and as these economies grow and change, consumer spending will also grow. PepsiCo, being a consumer staples company, will benefit from the global economic growth in these developing countries. A prime example of PepsiCo benefiting from this is in Mexico, where organic revenue grew 6 percent year over year.
In more developed countries, there is a fast-changing sentiment against sugary drinks. This had led to soda sales decreasing drastically for PepsiCo in the past few years. However, product price increases can temporarily balance out the volume loss while the company tries to transform into a more healthy company. This transformation will be a lengthy process, but it will pay off big time.
American consumer tastes in particular are changing; people are starting to prefer more healthy alternatives to soda. Soda consumption fell to year lows last year , and more Americans drank bottled water than soda for the first time ever in history. Sugary drinks are starting to fall out of favor, and it's causing sales to slump; even diet sodas are starting to see decreased demand. The public now prefers water and other more healthy drinks with less calories and sugar. This trend does not seem like it will reverse anytime soon.
It probably all sounds pretty bad for PepsiCo considering how its claim to fame was Pepsi, a popular soft drink. However, Pepsi is not just rolling over and dying, it is trying to transform its business model completely to adapt to the changing consumer.
PepsiCo is trying to adapt to the shifting consumer by making its products more health conscious. According to its recent earnings report, over 45 percent of its revenue now comes from "guilt free" healthy products. It is reducing the amount of calories and sugar in its products while increasing the nutritional value of many of its products.
This strategy will actually allow PepsiCo to benefit from changing consumer tastes.
Marketing tactics such as branding products with labels like "backed" or "simply" can also help increase sales in these guilt-free products. Reducing the size of soda cans and other products will also make the company's non-healthy products more appealing while giving it a higher profit margin.
PepsiCo can now offer two options, a healthy option to consumers who are more mindful about their health, or an option to indulge for those who do not mind the extra calories. With the demand for more healthy snacks and drinks increasing , it is a very good thing that PepsiCo is changing its portfolio of products to capitalize on that demand. A healthier portfolio of products and international demand will most likely be the two main factors which will drive revenue growth for the next few years to come.
However, many investors are still concerned about the increasing negative sentiment towards sugary drinks; I personally do not believe it is that big of a problem for PepsiCo. A lot of people do not realize Pepsi does a lot more than just sell soda. It has a very diversified and well-established portfolio of products. PepsiCo owns over 22 different brands ; Aquafina, Quaker Oats, Tropicana, Naked, Lay's, Doritos, and Fritos are just a few examples of the popular brands it owns.
The company sells a wide variety of products other than soda under these brands, ranging from bottled water to cereal. As an added layer of diversification, some of its more unhealthy products, such as Lay's chips and Mountain Dew, also have more healthy counterparts.
Diet Mountain Dew and Baked Lay's chips are the more healthy versions of Mountain Dew and Lay's chips. PepsiCo will also continue to make strategic acquisitions of product brands in the future to further diversify its portfolio and bring more growth.
Recently, there have been rumors that PepsiCo is trying to a cquire the coconut water brand Vita Coco. While it is not healthy to speculate on possible acquisitions, it makes sense for PepsiCo to acquire Vita Coco.
Vita Coco sells coconut water, which is a market that is seeing explosive growth due to the changing consumer sentiment shifting towards more healthy drinks. Vita Coco would be a very great product brand to acquire that would satisfy the company's desire for more healthy products. Reuters reported that the bid to acquire Vita Coco by Pepsi was less than 1 billion dollars, making it a relatively inexpensive deal compared to its other ones in the past. If the rumors are true, PepsiCo could soon become the dominant player in the coconut water market.
With an appealing dividend yield of 2. It has increased dividends for the past 45 years, and its dividend yield has grown consistently even during recessions. PepsiCo also has a dividend payout ratio of PepsiCo is also a better buy when compared to its main competitor Coca-Cola.
PepsiCo Stock Price & Information
When you look at the product brands the two companies have, you can see that PepisCo's brands are a lot more diversified and healthy compared to Coca-Cola's brands. Coca-Cola only sells beverages while PepsiCo sells a range of products. PepsiCo sells beverages, chips, bars, and even cereal products.
The products PEP sells are also becoming more and more healthy; this gives it an edge over Coca-Cola which has failed to adapt to changing consumer tastes.
The slowdown of soda sales has hurt both PepsiCo and Coca-Cola, but the former will stand to lose a lot less because of its diversification and health initiatives. Last quarter, PepsiCo beat earnings estimates while Coca-Cola missed earnings estimates because of these reasons.
I think the main reason for this is because Coca-Cola has a dividend yield of 3. However, I do not believe that Coca-Cola can maintain this dividend yield. Currently, Coca-Cola has a dividend payout ratio of percent. Any dividend payout ratio that is over percent means that the company is paying out more in dividends than earnings coming in.
This suggests that Coca-Cola's high dividend is not sustainable and that its dividend is unlikely to be hiked anytime soon. PepsiCo only has a payout ratio of PepsiCo almost seems like the perfect stock to buy and hold forever. It is a consumer staples company that has a track record of consistent organic sales growth. Its well-diversified portfolio of products is adapted to changing consumer tastes and will only get better as it makes more strategic acquisitions of product brands in the future.
The high dividend yield and extensive history of dividend increases is the final cherry on top for this fantastic company. I wrote this article myself, and it expresses my own opinions.
3 Reasons to Buy PepsiCo Inc. -- The Motley Fool
I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. Buy And Hold Forever Jun. Hudson River Capital Research. Summary PepsiCo has had a consistent history of organic revenue and earnings growth.
Warren Buffett One of the most compelling reasons to own PepsiCo's stock is its revenue and earnings growth potential. Want to share your opinion on this article? Disagree with this article?
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