PepsiCo (PEP +2.25%) might not be the first one you would think of as a stellar long-term growth stock. The consumer staples giant stung investors last year, falling 10% even as the S&P 500 gained over 20%. You would have done much better owning a diverse index fund, or one of Pepsi's competitors like Coca-Cola (KO 0.17%).
Yet patient investors might earn excellent returns by looking past the short-term challenges that pressured the stock last year. Here are three great reasons to consider Pepsi's mature business as your next purchase for 2025 and beyond.
1. Sturdy growth
PepsiCo is known for being the perennial runner-up in its battle with Coke over supremacy in the soda industry. But its diversification, delivered through its dozens of beverage, snack, and convenience food brands, means it doesn't need to dominate the soda market to generate stable growth.
NASDAQ: PEP
Key Data Points
Organic sales rose 2% in 2024, mainly thanks to solid growth in overseas markets like Europe and Latin America. Sure, that modest uptick was weak compared to the prior year's 9% spike. But PepsiCo was hurt by a few unusual pressures last year, such as a large safety recall in its Quaker Foods unit.
Management is calling for another year of subdued growth ahead, with organic sales likely to rise by at least 2% as profits expand around 4%. Coke is projecting organic growth of between 5% and 6%, by comparison.
2. Passive income
If you're looking for passive income, it doesn't get much better than PepsiCo. The stock's yield is 3.6% today, compared to the 1.2% you would get by owning the wider S&P 500. The company is also a member of the exclusive club of Dividend Kings, meaning it has boosted its payout for at least 50 consecutive years (53, in this case).
The most recent raise arrived in early February when shareholders received a 5% increase. The growing dividend and its aggressive stock buybacks are funded by the company's ample cash flow. Pepsi produced $13 billion in operating cash flow in each of the last two years. In other words, it pays to own dozens of leading food and beverage brands even through those inevitable slow growth periods.
3. A bargain price
After two consecutive years of over 20% growth in the stock market, it can be hard to find bargain-priced stocks to buy right now. There's little risk of overpaying for Pepsi, though. The stock is valued at a reasonable 21 times earnings, which is close to a five-year low.
You would have to pay 28 times earnings to own Coca-Cola and 27 times earnings for spice and snack specialist McCormick, in contrast. PepsiCo looks similarly cheap on a price-to-sales (P/S) basis, with its ratio of 2.2 representing a multiyear low here in early 2025.
PEP PS ratio data by YCharts.
Sure, there are some good reasons for investors to feel pessimistic about the company's next few quarters. Inflation is still affecting consumers in the core U.S. market, and there's less room for food and beverage giants to raise prices without risking declining sales volumes. There's nothing exciting about a second consecutive year of sub-5% organic sales growth, either.
Pepsi has thrived through many consumer spending slumps in the past, including the 2024 period that saw core earnings rise by 9% even though organic sales inched up by just 2%.
That track record suggests that shareholders can expect margin expansion again in 2025, with a reasonable chance of accelerating sales growth once the industry recovers from its current malaise. In the meantime, sit back and collect PepsiCo's predictably rising dividend payment.
