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PepsiCo (PEP) has been a long-standing player in the food and beverage industry. Known for its diverse product range, which includes iconic brands such as Pepsi, Mountain Dew, Lay's, and Quaker, PepsiCo has demonstrated consistent growth and resilience in various economic cycles.

This explains how it earned the title of Dividend King by consistently paying and increasing dividends over the last 52 years. Dividend King is a title bestowed upon companies that have increased their dividends for at least 50 consecutive years. However, does this status alone justify buying PepsiCo stock right now? Let's dive in.

How Did PepsiCo Perform in Q2 of Fiscal 2024?

Over the last few years, PepsiCo's financial performance has been robust, with consistent revenue growth and profitability. While last year was difficult due to macroeconomic pressures, PepsiCo handled them admirably. In general, consumer companies are defensive, which means that demand for their products remains constant regardless of economic conditions.

PepsiCo has seven primary business segments. This diversified portfolio enables PepsiCo to reduce the risks of relying on a single product line or market.

Net revenue in the second quarter of 2024 fell short of expectations, rising 0.89% year on year to $22.5 billion. Adjusted core earnings per share (EPS) rose 10% to $2.28. EPS also exceeded analysts' expectations by $0.12 per share.

Valued at $225.2 billion, PepsiCo’s stock has dipped 3.6% year-to-date, compared to the S&P 500 Index's ($SPX) gain of 18.5%.

PepsiCo is committed to returning capital to shareholders, with a 3.31% forward dividend yield. This figure is significantly higher than the consumer staples sector average of 1.89%. In April, PepsiCo hiked its quarterly dividend by 7% to $1.355 per share.

The company generated a negative free cash flow of $259 million in Q2. However, management expects to return $8.2 billion to shareholders in 2024, which includes $7.2 billion in dividends and $1.0 billion in share repurchases. In 2024, PepsiCo anticipates a 4% increase in organic revenue and an 8% increase in adjusted core EPS to $8.15.

This increase in earnings and generating positive FCF in 2024 should allow the company to maintain its current dividend payout of 61.8%.

CEO Ramon Laguarta stated, “For the balance of the year, we will further elevate and accelerate our productivity initiatives and make disciplined commercial investments in the marketplace to stimulate growth.”

Companies that successfully grow their dividends typically have a competitive advantage in their industries. PepsiCo competes fiercely with other global giants such as The Coca-Cola Company (KO) and Nestle (NSRGY).

However, PepsiCo's diverse portfolio, strong brand recognition, and extensive distribution network give it an essential competitive moat. The company's ability to adapt to market trends and consumer demands has also contributed to its continued market leadership.

Notably, over the last five years, PepsiCo has increased its revenue at a compounded annual growth rate (CAGR) of 6.4%. Comparatively, rival Coca-Cola (also a Dividend King) has increased revenue at a CAGR of 4.2%.

Analysts that cover PepsiCo stock expect its earnings to increase by 7.04% in 2024, and 7.5% in 2025.

PEP stock is trading at 20x forward 2024 earnings, lower than the five-year historical average price-to-earnings ratio of 25.3x, making it a reasonable buy now.

What Does Wall Street Say About PepsiCo Stock?

Overall, analysts have an average rating of “moderate buy” for PEP. Based on its mean target price of $187.35, the stock has an upside potential of 14.4% from current levels. Plus, its high target price of $202 implies an upside potential of 23.3% over the next 12 months.

Out of 19 analysts covering the stock, 11 have a “strong buy” rating and eight have a “hold” rating.

The Bottom Line on This Dividend King

Despite an average quarter, PepsiCo's stock remains a compelling investment opportunity for those seeking stability, consistent income, and growth potential. PepsiCo, as an established consumer company, may not have the same explosive growth potential that AI stocks do right now. However, for income-oriented investors, this Dividend King could provide a consistent source of passive income.

On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.