There are times on Wall Street when you just have to throw caution to the wind. Sure, Mr. Market may be downbeat on a stock, but that doesn't mean it is a bad investment.
In fact, the contrarian move of buying when other investors are selling can lead you to strong long-term results, particularly if you focus on owning historically well-run companies. Which is why you won't want to wait until some tomorrow to start buying PepsiCo (PEP 0.36%) stock. Here are three reasons today is the day to buy.
1. The stock is in the dumps
Shares of consumer staples giant PepsiCo have lost nearly a quarter of their value since early 2023. That's a pretty sizable drawdown for this company. But every time it has lost this much value, it has eventually bounced back to reach new highs.
There's no guarantee that will happen again, of course, but the business hasn't fundamentally changed in any way since 2023. So there's no reason to believe it has suddenly become a bad company.
However, there's an interesting aspect to this price drop. It has pushed the dividend yield up to around 3.6%, near the highest levels in the company's history. Dividend yield can be used as a rough gauge of valuation, and right now PepsiCo's yield is screaming that the stock is historically cheap. To back that up, the company's price-to-sales and price-to-earnings ratios, more traditional valuation metrics, are both below their five-year averages.
2. PepsiCo knows how to get back up after getting knocked down
As noted above, nothing material has changed about PepsiCo as a company since early 2023. In fact, the food maker has basically been running the same successful playbook for decades, which has translated into a very long history of success.
That shows up, once again, with the dividend. PepsiCo is a Dividend King, one of a rarefied group of companies that have increased their dividends year in and year out for 50 consecutive years or longer. You don't build a record like that by accident; it requires high levels of execution in both good markets and bad ones.
Think about the last 25 years, let alone the last 50. There was the dot-com bubble, the Great Recession, and the coronavirus pandemic, to highlight some of the worst periods. And PepsiCo did just fine in each case, growing its business and rewarding investors with larger dividends each year.
In fact, despite the current business headwinds, management continues to invest for the future. It just bought Siete Foods, a diversified Mexican-American food company, and has agreed to buy the 50% of the Middle Eastern food specialist Sabra that it didn't already own.
These aren't life-altering acquisitions, but they show that the company is continuing to push forward, which is exactly what investors should expect from a reliable business.
3. PepsiCo has a lot of levers to pull
These two acquisitions are relevant in another way: They show the diversity of PepsiCo's business. Siete makes everything from chips to packaged food items. Sabre makes dips, which could fall into the chips or packaged foods category.
And the company's namesake product is a beverage, making it a major player in all three segments of the food sector. Many of its peers just operate in a single segment.
What this means for investors is that PepsiCo is something of a one-stop shop in the consumer staples space if you are looking for a food company. And management has many different ways to grow its business over time. If one division is lagging, it can move resources to the other divisions. Moreover, it has three different niches within which to act as an industry consolidator.
Act while you can to pick up this great stock
It's true that PepsiCo's financial results have been a bit underwhelming lately (which is why the stock is currently out of favor), but the company's highly successful history suggests that its performance will eventually turn higher again. In fact, the Siete and Sabra acquisitions show that management is already trying to lay the foundations for a brighter future.
Add in a historically high dividend yield and PepsiCo's status as a Dividend King, and it is hard to see why a long-term dividend investor wouldn't want to buy the stock right now.
