The Motley Fool just updated its report on the 10 largest consumer staple companies. You probably know every name on the list, which includes retail giants like Walmart (NYSE: WMT), product makers like Procter & Gamble (NYSE: PG), and tobacco companies like Philip Morris International (NYSE: PM). Also on that list is a Dividend King food and beverage company that has a historically high yield. Here's why it could be the best opportunity for investors today.
What does PepsiCo do?
To get right to the crux of the topic, PepsiCo (PEP 1.12%) is the company in question. It sits at No. 7 on the list of the largest consumer staple companies, with a market cap of around $200 billion. It is one of three beverage makers on the list, the other two being Coca-Cola (KO 0.94%) at No. 4 and Anheuser-Busch InBev (NYSE: BUD) at No. 10.
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Unlike those other two, however, PepsiCo's business extends well beyond beverages. It also has leading positions in the salty snack (Frito-Lay) and packaged food (Quaker Oats) segments of the sector. It is one of the most diversified companies on the top-10 list. Only Unilever (NYSE: UL), which makes household products and food, has a similar degree of diversification.
PepsiCo, meanwhile, stands toe to toe with every company on the list with regard to name recognition. For more direct peers, those that manage brands and are not retailers, it can compete equally on distribution, marketing, and product development. And, like all the other names on the list, PepsiCo is large enough to act as an industry consolidator, buying smaller companies to round out its brand portfolio and keep up with consumers' buying habits.
The proof of the business's strength and resilience is best highlighted by the fact that PepsiCo is a Dividend King. It has increased its dividend annually for 53 consecutive years, which is not something a company can achieve if it doesn't have a strong business model that gets executed well in both good times and bad. For reference, other Dividend Kings on the list include Walmart, Coca-Cola, and Procter & Gamble.
This is not a good time for PepsiCo
Among the sub-grouping of large consumer staples companies that are also Dividend Kings, PepsiCo has been the laggard in recent years. To put a number on that, PepsiCo's 2.1% organic sales growth in the second quarter was less than half the 5% growth of Coca-Cola, its closest peer. No wonder PepsiCo's stock is down more than 20% from its 2023 highs, the worst result from the Dividend Kings grouping. That also puts PepsiCo into its own personal bear market.
However, the market's negative view of PepsiCo could be an opportunity for long-term dividend investors. For starters, history suggests that PepsiCo will muddle through this rough patch, as it has done many times before. Second, the company is already making moves to improve performance, including buying a Mexican-American food maker and a probiotic beverage company. Third, falling share price has pushed its dividend yield up to 3.8%, which is toward the high end of the stock's historical yield range.
That last point suggests that PepsiCo stock is cheap right now. This view is backed up by the fact that the company's price-to-sales and price-to-book-value ratios are both well below their five-year averages. The company's price-to-earnings ratio is sitting around the longer-term average. This is an opportunity if you think in decades and not days.
The time to jump is now
The interesting thing here is that PepsiCo is actually the best-performing stock on the top 10 list over the past three months. It seems investors are beginning to recognize the potential. But given how far the stock has fallen, it is still flying under the radar a bit. If you like owning Dividend Kings with reliable businesses, PepsiCo can still be an attractive long-term investment to add to your portfolio... if you act quickly.
