The stock market has been fluctuating this year. Uncertain tariff policies and their impact on the global economy certainly played a role.
During these unresolved periods, a sharp drop in the price of a shift to dividend stock can prove a wise investment, provided that the long-term fundamentals of the company are still justified.
Fortunately, Pepsi (NASDAQ: PEP)although its share price has dropped nearly 23% over the past year to May 30, it is perfect for this bill. Now is the time to take a closer look to make this consumer staple company a buying opportunity for long-term dividend investors.
Most people know the company's Pepsi Soda brand. However, Pepsi has many brands in the beverage and food categories recognized and purchased by consumers.
Pepsi drinks include Gatorade, mountain dew and ocean spray. It also sells foods such as cereals, granola, oatmeal, oatmeal and snacks under many brands.
Unfortunately, even Pepsi products cannot be protected from fatigue from higher prices due to consumer fatigue. Its first-quarter adjusted revenue eliminated the effects of foreign currency translation and acquisitions and divestitures, increasing revenue by 1% by 1%. This is entirely due to the higher price, which increases by 3 percentage points. At the same time, the quantity is minus 2 percentage points.
As the company sells its products globally, the impact of tariffs is unclear. However, it may increase costs and force management to increase prices. This could further undermine demand and hurt profitability. Management currently expects adjusted earnings per share this year to be roughly compared to 2024.
However, given the company's product breadth, I'm not worried about long-term demand when tariff policies become more stable.
Meanwhile, Pepsi shareholders can collect reliable dividends. In fact, the board increased spending in the June quarter by 5%. This is a 53-year continuous increase, making the company the dividend king.
Shareholders can sit down to receive a dividend yield of 4.3% at the new $5.69 annual rate of stock. That's more than three times S&P 500 The yield of the index was 1.3%.
This is often a positive signal when companies raise their dividends, especially given their reluctance to cut spending. However, it is still useful to check yourself. Pepsi reached the test with a payout ratio of 78%.
Of course, Pepsi's dividend may cut down on the long-term demand for its products. However, with its stable and famous product, I can't see that this happening. Consumers have suffered higher prices before, which may slow down Parker speed.
These are short-term effects, but demand rebounds once the greater economic headwind calms down. After all, people still buy soda, Gatorade and fries, and Pepsi has a lot of popular products.
At the same time, the valuation of stocks has become more attractive. The ratio of stocks to trade prices (p/e) is 19, down from 26 a year ago. It is also 28 lower than the S&P 500's average P/E ratio.
You can sit down and collect dividends while waiting for higher demand for Pepsi products to return. Once this is done, earnings growth will accelerate and stocks may receive higher valuations.
This should give Pepsi shareholders an attractive total return, who can see the big picture, while the company suffers from short-term revenue pain.
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Lawrence Rothman, the CFA has no position in any of the stocks mentioned. Motley fool has no position in any stock mentioned. Motley Fool has a disclosure policy.
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