PepsiCo: A “Easy Hold” for Long-Term Investors

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PepsiCo (PEP) stock recently went to a new all time high. Juicing the stock were impressive results in the latest quarter, especially in the company’s salty-snack and beverage businesses, explains dividend reinvestment specialist Chuck Carlson, editor of DRIP Investor.

PepsiCo has an impressive list of brands, some of which may surprise you — Pepsi, Mountain Dew, bubly, Cap ’N Crunch, Gatorade, Propel, Lay’s, Doritos, Cheetos, Quaker Oats, Tropicana, Tostitos, Fritos, and Aquafina, just to name a few. Overall, the company has 23 brands that generate more than $1 billion each in estimated annual sales.

Many of the company’s brands performed well in the latest quarter. Indeed, the firm posted organic revenue growth of nearly 13% in the quarter — an extremely impressive feat. PepsiCo’s Beverages North America unit increased market share and had 21% organic growth in the quarter.

The unit benefited from an easy comparison with the year earlier quarter, which was impacted by Covid shutdowns. The reopening of foodservice establishments and increased consumer mobility provided a big lift to this segment.

While organic growth will certainly slow here in the second half of the year as comparisons become more challenging, the company should continue to see progress in this business.

A strong performance was also turned in by Frito-Lay North America division. This unit achieved 6% organic growth while increasing market share. This business benefited from a variety of factors, such as an expanded set of variety pack offerings, continuous flavor and brand innovation (Doritos 3D Crunch, Cheetos Crunch Pop Mix), and healthier snacking alternatives, such as its baked and lightly salted offering

Overall, the company forecasts organic growth of 6% for the year, a fairly conservative outlook that it should beat. For the year, the fi rm is looking for core earnings per share of approximately $6.20 per share, a 12% increase over 2020 results.

PepsiCo has one of the strongest dividend records in the market. The firm recently boosted the dividend to a quarterly rate $1.075 per share. The increase marks the 49th consecutive year PepsiCo has increased its dividend.

Despite the recent stock gains, these shares are still underperforming for the year, so there is still plenty of ground that can be made up, especially as Wall Street believes the recent improvement will continue over the next several quarters.

To be sure, PepsiCo stock will never be at the top of the leaderboard if we enter a more speculative market environment. But for investors who want dividend yield — the stock is yielding 2.7% — steady growth, and lower volatility, these shares fi t the bill quite nicely.

PepsiCo is what I call an “Easy Hold” stock. The stock’s combination of steady capital appreciation and ample and growing income stream make it a core holding for any investor, especially those trying to dodge some of the market’s volatility. Do not be afraid to buy these shares at current prices and step up purchases on price breaks back to $145.

Please note the company’s direct-purchase plan allows initial investments directly with a minimum initial investment of $500.

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