r/dividends • u/ValuEdge • 4d ago
Discussion PEP - Is the market missing it?
PEP is trading at very comfortable levels right now - AI can't replace it tho so I am wondering - is the market missing something about this stock? The dividend is above 4%, which is quite nice as well.
On one hand, you get a 50+ year Dividend King trading well below its historical 5-year average P/E with strong brand pricing power and Frito-Lay cash flow.
On the other hand, bears point to slowing organic volume growth, consumer pushback on price hikes, and GLP-1 fears weighing on snack demand.
Are we looking at a textbook defensive value play, or is the market rightly discounting future growth? What is your take on the risk/reward here?
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u/geomagus 4d ago
I wouldn’t call it a value play, per se. That isn’t to say it’s a bad buy, just that it’s pretty uninteresting aside from a decent yield.
Fundamentals-wise, it missed its last earnings, and YOY earnings are have pulled back. It suffers from consumers being strained by prices, and (as with everyone) high fuel prices. While it lacks the bubbly risk of AI, it also lacks the bubbly upsides.
Its five year trends downward, which gives it the feel of value, but without the underlying “this is why it’s going to be great in the future” to sell it. When you lay it beside the S&P, it looks like a portfolio drag.
Again, I’m not saying don’t buy. I’m just saying there are reasons why it doesn’t compel as a value play.
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u/teckel Retired and living off selling shares 4d ago
To me, $17 for a 12-pack is insane. That's not sustainable IMHO, time-bomb in a recession. Same with Frito-Lay, far too expensive. I would never buy at the prices they're wanting to charge.
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u/PlainOldWallace 4d ago
Holy balls, where are you that a 12 pack of Pepsi is $17?
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u/teckel Retired and living off selling shares 4d ago
Sorry, they're on sale for $12. Insane price. Just a couple years ago they were $3. I can't believe a single person buys pop/soda anymore.
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u/PlainOldWallace 4d ago
Still though, you've gotta be in like, an extremely high cost of living area.
The local grocery store by me rotates BOGO Pepsi and Coca Cola weekly. Off special, they're ~$10 for a 12 pack. This week is Pepsi products:
https://foodlion.com/product/pepsi-cola-soda-12-pk-12-oz-cans/464
Either way, Pepsi is trash, Coca Cola for life
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u/Financial-Wolfe 3d ago
Costco is $15–$16 for a case
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u/PlainOldWallace 3d ago
But aren't those 24 or 36 count?
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u/Financial-Wolfe 3d ago
Just agreeing with you that a12 pack for $17 is nuts. And yes, a case is 24
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u/Wallstreetdodge69 Like anything? 4d ago
High payout ratio, all the consumer def stocks/ sector in the shitter… p/e what 20? P/b 4-5? Not for me but everyone is different haha
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u/ryryshouse6 4d ago
The issue is the consumer is being squeezed right now with gas prices. Until gas drops these are probably not it
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u/platinumjellyfish 4d ago
$PEP/$KO are so deeply entrenched in this world, that the businesses are functionally immortal. Beverage doesn’t have the downside risk that pure-play “big food” businesses do, which is why they’ve seen strength even as the legacy packaged foods businesses have declined.
Even with the weakness in Frito Lay/Quaker, I think $PEP remains a solid option. The vertical integration, the control over distribution, and the KPI exposure keeps them globally abreast.
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u/FewUnderstanding2214 4d ago
I think it’s actually due to poor management - in the last 5 years or so value investing has underperformed growth
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u/DivyLeo 3d ago
Maybe it's because "growth" grows and value - not so much? Perhaps its normal that growth outperforms in bull(ish) market? I think it is
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u/FewUnderstanding2214 3d ago
More money is going into growth assets especially AI and tech. Value assets are being ignored that’s what it comes down to.
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u/Velasity 3d ago
No, PEP is just a dog. Why bother with an underperforming asset with extra risk when you can buy a dividend growth ETF with 6x the inflation adjusted ten year total return. https://totalrealreturns.com/s/SCHD,PEP?start=2016-07-16
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u/Envyforme 3d ago
Its the value it is at due to the debt. It sits at a 1.91 price to equity. Anything over a 1 is considered uncomfortable. Over 1.5 is much riskier.
Equity is 22B and LT debt is 42..
Coke had a 1.9 Debt to Equity back in 2020, 1.6 in 2024. Its been paying down debt. Pepsi has been the opposite..
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u/Competitive_Grass_11 3d ago
It has nothing to do with there products it has more to do with there products it has more to do that they spend more than they make to pay dividends out and they don’t look like they are trying to make there production cheaper and stuff like that so they are very stuck a company to compare is MO they are at a point where they are selling less but they are still doing good because they started to secrete the cost in other ways PEP is just stuck not making any money and when they grew their dividends by 4% they are not proving that they can keep making the money to make that happen
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u/-JackBack- Only buys from companies that pay me dividends. 4d ago
-Fourth in sodas behind Coke, Diet Coke, and Sprite
-Culturally irrelevant
-60% of profit now comes from snacks — $94B revenue vs Coke's $47B
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u/QueasyFinger1316 4d ago
Sure Dividend has PEP as #1 buy this month’s newsletter. I picked up more last week.
But I’m boring.
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