Let's take a step back to May 2025.
PepsiCo (PEP 0.14%) is hovering near a four-year low amid stagnant sales growth and weak consumer spending. Pepsi, which owns a variety of carbonated, juice, coffee, tea, and energy drink brands, as well as Frito-Lay and Quaker Oats, isn't exactly well positioned to evolve with an increasingly health-conscious consumer base.
Seemingly, everything was going wrong for Pepsi, and declines in its stock price, paired with over 50 years of dividend increases, pushed its yield up to 4.4%. I predicted the sell-off had gone too far and that investors were underestimating Pepsi's brand portfolio and its willingness to diversify into healthier options and mini meals.
Pepsi rebounded from its spring lows but still finished 2025 down 5.6%.
In 2026, the stock is up a staggering 18.8%. For comparison, the consumer staples sector and Coca-Cola (KO +0.28%) are up about 13%, while the S&P 500 (^GSPC 1.18%) is only up 1.3%.
Pepsi has gone from out of favor to one of the hottest S&P 500 stocks. Here's why the rally is justified and why Pepsi could still be a buy now.
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Pepsi's turnaround quarter
On Feb. 3, Pepsi reported a blockbuster fourth quarter that included faster sales growth, higher operating margins, and double-digit earnings-per-share (EPS) growth. North America was Pepsi's weakest segment, but the company is having tons of success in Europe, the Middle East, Africa, and Latin America -- a testament to the strength of its global supply chain and marketing.
Pepsi is only guiding to 2% to 4% organic revenue growth and 4% to 6% constant-currency EPS growth in fiscal 2026. But investors are pleased with the company's ability to navigate a challenging operating environment while returning capital to shareholders.
In November, Pepsi announced a 5% dividend increase, marking its 53rd consecutive annual increase and maintaining its spot on the list of Dividend Kings -- companies that have raised their payouts for at least 50 consecutive years.
Unexpectedly, Pepsi announced another dividend increase when it reported its latest earnings -- boosting the annualized payout to $5.92. Pepsi now expects to spend $7.9 billion in fiscal 2026 dividends. It also announced a $10 billion stock buyback program through Feb. 28, 2030, including $1 billion in fiscal 2026 buybacks.
However, because Pepsi's stock price has rallied, its forward dividend yield of 3.5% is still less than the highs from last year. A company's yield can decline if its stock price outpaces its dividend growth rate, which was the core argument I made last May when I predicted its yield had peaked.
NASDAQ: PEP
Key Data Points
Pepsi is still a buy
Pepsi is soaring due to a broader rally in the consumer staples sector, strong international results, and management confidence in Pepsi's free-cash-flow growth to return more capital to shareholders.
Recent acquisitions will begin to improve Pepsi's results in the coming months, with Siete Foods expected to make an impact starting in March and prebiotic soda brand Poppi in July. Both of these deals, along with its decision to acquire full ownership of Sabra and Obela (dips and spreads) in November 2024, improve Pepsi's positioning in mini meals and health-conscious categories.
Even after the stock's recent run-up, Pepsi still trades at 19.8 times forward earnings, which is a noteworthy discount to Coke's 24.5 times forward price-to-earnings ratio. All told, Pepsi isn't as cheap as it used to be, but it's still a good value for dividend investors.
