“No one ever got fired by recommending Pepsico.” That is a quote Jim Cramer was told when he worked at Goldman Sachs. I find it interesting because while Pepsico (PEP) may not skyrocket and make you rich overnight, it probably won’t lose all your money either. In other words, it is considered a safe, conservative investment.
Pepsico manufactures, markets, distributes and sells beverages and snack and other foods worldwide. Pepsi, Frito-Lay, and Quaker Foods are some of the brands they produce. The company has expanded from soft drinks into sports drinks (Gatorade) and even bottled water (Aquafina) in its beverage division. Their snack foods include Doritos, Cheetos, Tostitos, and many others. PEP sells through grocery and convenience stores as well as through restaurants and arenas.
Pepsico stock is never really cheap, and with a P/E of about 25, it is more expensive than the overall market in this metric. PEP stock has gained in the last year because it is seen as a safe haven in a recession. It is hard to give up the little pleasure of a soft drink or a salty snack even when the economy is not doing well. Pepsi reached a high of $186.84 last December, and was at a low of $154.86 last June. Currently the stock price sits at $179.09 so it is climbing back to its 52-week high.
PEP has to deal with inflation, just like everyone else. It has had a hard time raising prices to keep up with the cost of its inputs, so the profit margin has been squeezed lately. As time goes on, I feel sure Pepsi will be able to pass on most of the costs they have incurred in the form of higher prices, but it may take some time. And, as mentioned in a previous article, when input costs do come down, the retail price usually comes down slower so the margins will improve.
Pepsico is a Dividend King. PEP currently pays a dividend of $4.60 annually which gives it a yield of 2.57%. With the announced increase this year, Pepsico has raised their dividend for 51 consecutive years. This is quite an accomplishment and shows the resilience and stability of this company. PEP announced a 10% increase in its dividend to $5.06 starting in June of this year. This is above their 10-year growth rate of 7.9% and is a sign the company is confident they will be able to continue growing sales at a good clip.
For the next year, PEP has an average price target of $188.20, with a high target of $200 and a low target of $175. Out of 11 analysts rating Pepsico, 5 rate it a buy or strong buy, 5 rate it a hold, and 1 rates it a strong sell. If you hold shares of Pepsico already, I would reinvest the dividend but would be hesitant to outright buy new shares right now. If the stock sold off some with the general market, and nothing bad has happened with Pepsi itself, then that could be a good opportunity to step in and make a purchase.
As always, do your own due diligence before investing in any stock. Full disclosure, I do own shares of Pepsico. Sources include Schwab, Yahoo Finance and Marketwatch.com.
(Intentional Investing is a weekly column written by Kyle Smith from Floyd County, TX, based upon his investment knowledge and does not represent the views or opinions of the Floyd County Record)
