Who hasn't heard of PepsiCo Inc.? Unless you're a real health maniac, you've probably indulged in a Frito or two.
There is a lot to unwrap about PepsiCo Inc. As of Q2, PepsiCo Inc. (NASDAQ: PEP) was up 3% year-to-date, slightly under the mark compared to its main competitor, The Coca-Cola Company (NYSE: KO). According to its Q2 results, the company expects to increase to 10% organic revenue growth by the end of 2022, beating previous guidance. As a dividend perk, it expects to return $7.7 billion to shareholders — dividends of $6.2 billion and $1.5 billion in share repurchases.
Despite its stance as one of the world's best-known companies and new Dividend King, does that automatically mean the company deserves a spot in your portfolio? Let's take a look at the pros and cons of investing in PepsiCo Inc. so you can deliver the right results directly to you.
About PepsiCo Inc.
PepsiCo Inc., headquartered in Purchase, New York, creates and sells beverages and foods worldwide through several brands, including Frito-Lay, Quaker Foods and PepsiCo, including the following:
- Dips, snacks and spreads
- Rice and rice cakes
- Mixes and syrups
- Granola bars and oatmeal
- Side dishes
- Beverage concentrates
- Fountain syrups
- Tea, coffee and juices
- Dairy products
- Sparkling water
The company distributes beverages and foods through wholesale distributors, grocery stores, drug stores, convenience stores, discount/dollar stores, e-commerce retailers as well as through other platforms and retailers throughout the world (in more than 200 countries worldwide).
Caleb D. Bradham, a pharmacist, created the first Pepsi-Cola in New Bern, North Carolina, and incorporated the Pepsi-Cola Company in 1902. Charles G. Guth took on the company's trademark and assets in 1931 and began selling 12-ounce bottles for five cents.
The Pepsi-Cola Company eventually merged with Frito-Lay Inc and became PepsiCo Inc. The company recently invested $550 million in Celsius Holdings, an energy drinks company, and also acquired Rockstar for $3.85 billion in 2020.
Learn more: Is Coca-Cola (NYSE: KO) a Good Dividend Stock?
Pros and Cons of Investing in PepsiCo Inc.
What are the benefits and drawbacks of investing in PepsiCo Inc.? Let's take a look.
The benefits of investing in PepsiCo Inc. include the following:
- Popular brands: There's no getting around it — PepsiCo Inc. offers some of the world's staple snack brands, including Doritos, Lays, Fritos, Mountain Dew, Gatorade and Quaker.
- Diversification: One of the most important lessons about investing involves understanding the importance of diversification. It's also important to invest in businesses that also offer ample diversification in its product portfolio, which includes food, snacks and beverages.
- Healthier alternatives: Despite the fact that PepsiCo has historically manufactured and sold traditionally "unhealthy" snack options, it has expanded into healthier alternatives, such as the use of Stevia, a sugar alternative made from the leaves of the stevia plant. It also plans to cut the sugar in its drink brands and opt for healthier options in its snacks.
- Worldwide growth: PepsiCo has successfully transferred its brands worldwide, such as in Africa, South America and Asia, and has managed to scale in those areas of the world to continue to heighten and expand brand awareness.
- Dividend King status: PepsiCo just become one of the heralded Dividend Kings. A Dividend King is a company which raises its dividend for 50 years or more. PepsiCo's consecutive dividend increase means that investors will likely be able to depend on its dividends far into the future.
Why might you want to shy away from PepsiCo, despite its ubiquitous brand following?
- Competition: Naturally, PepsiCo's chief arch nemesis has always been the Coca-Cola Company (in the soft drinks arena, anyway). The two companies consistently vie for a top spot in the worldwide beverage market, though most fans, it seems, put themselves squarely in the "Pepsi" or "Coke" camp.
- Not so good for fitness: Fitness freaks will likely continue to shy away from PepsiCo's offerings, and unfortunately, some of its failed offerings are also its healthier counterparts, such as Crystal Pepsi, which was due in part to customer dissatisfaction in the taste of the beverage.
- Singular minded: The company tends to be a bit either left-or-right brained in that its products don't diverge from its beverage and snack brands. While it's not likely that the world will choose to go on a health kick overnight, it's important to consider what its brands will do down the road.
- Continued good reports: In Q2, company revenues rose 5.22% to $20.225 billion. Its snacks division blitzed in at $4.84 billion and beverages topped 5.5% at $5.35 billion. Its Frito-Lay division saw a 14% rise. Its Quaker Foods division shoveled in an 18% increase in growth.
What are Your Takeaways as an Investor?
No bones about it, if you're considering PepsiCo, it's a conglomerate that is the epitome of a well-established company with high profit margins and sales. It just so happens that PepsiCo also does well in an inflationary environment — even more than its competitor, the Coca-Cola Company. (Read more about buying dividend stocks during inflation.)
As it continues to navigate overseas companies, as an investor, you may also feel secure in the fact that it should become a Dividend King this year. Over the long haul, investors should see continued positive-climbing revenues, positive earnings and cash generation and other high-fives. Note that it's not a high-flier like you can expect in the tech sector. You're likely not going to rocket toward success and high gains. However, what you can get out of owning the stock is a dividend that will likely continue to grow over the course of time.
The company has had its rough sailing (including as a result of some questionable products), but with efficient cost management, household global name and other factors, it's possible that PepsiCo will make a lot of sense as a positive add-in to your portfolio.
Learn more: 6 Best Dividend Stocks of All Time