Here's Why PepsiCo Stock Is Still a Great Long-Term Bet

PepsiCo (PEP -2.97%) has been trailing the market recently as investors turned their attention to high-growth companies in exciting sectors like technology. But this steady consumer goods giant still has a lot to offer patient investors.

In this video from "The 5" on Motley Fool Live, recorded on Sept. 23, Fool.com contributors Brian Withers and Demitri Kalogeropoulos discuss Pepsi's financial outlook, its plans for the future, and what they mean for the long term.

Brian Withers: Demitri, you have a completely different stock and a completely different industry. What are you bringing to the table?

Demitri Kalogeropoulos: Probably similar reasons, it's trailing the market. I'm talking about PepsiCo, ticker PEP which everyone's heard of. I think I just thought maybe Toby might just given a little plug to their competitor, I think he was shrinking a Coke over there. [laughs] Pepsi, there we go, [laughs] it's up four percent this year, up 34% over the last three years, and that's compared to the S&P's 52% increase. Lagging over the last three years and the short-term here, and that really just doesn't make any sense to me. We're talking about a Dividend Aristocrat. This is going to be a Dividend King after this year, this is going to be its 50th year of consecutive annual raises.

Pepsi had a great pandemic year in terms of navigating through the craziness, and they were able to keep organic sales growing at about the same rate they did the year before which was a multiyear high for them, around 5%. Whereas Coca-Cola, which doesn't have anywhere near as much diversity, they don't have that snack food division saw sinking sales volumes. Pepsi just didn't even miss a beat, and this year, they're targeting even better, faster growth. They're looking at around 6% annual growth, organic growth, and they're getting into exciting other areas like energy drinks. They are making a lot of investments in the business, to turn it into a more of a growth-focused company. I think that's just great, and that's definitely going to raise margins over time, it's going to be great for investors in terms of returns. Like you were saying, I think one of the it's definitely not a really exciting area, I guess a lot of investors are more interested right now and just triple-digit growth numbers you might see in some other areas. The other thing that might have some people worried is costs are going up, and there's always that question of whether companies like this can raise prices. But I think Pepsi has shown it definitely can, and it will be able to pass along those higher costs. I just see a really good future for this stock.

Withers: Yeah, and even though you brought up some good points, Demitri, even though the top line isn't growing, it's important that the dividend is protected and it's continuing to figure out how to scale even with the physical product distribution it has all around the world and it's grown its bottom line at a faster rate, which is why it's been such a good investment over time for the folks that have been patient with it.

Kalogeropoulos: Yeah, absolutely. It's just got a lot of good ways to grow from here and I like the direction they're going in terms of they're spending a lot of money right now, pouring it into the manufacturing, as you see with a lot of these companies, to kind of catch up with all the extra volume that they had to deal with last year that doesn't seem to be going away. Maybe that is going to pressure earnings a little bit, short-term, very short-term, but that's totally great news for the long term.

Withers: Yeah, super interesting. Glad you brought that one to the show.