PepsiCo’s stock market valuation at its lowest, but dividend yield at its highest

Inflation is penalizing cost structures that were miraculously spared for more than a decade, while also weighing on sales, particularly for companies operating in fiercely competitive markets where their pricing power proves limited.

Snack and soda giant PepsiCo, which reported its Q3 results yesterday, is suffering from this environment like many others, even as it navigates it while limiting the damage. On an organic basis, however, its sales and operating profit are growing more slowly than inflation.

PepsiCo now expects adjusted earnings per share, excluding exceptional items, to increase by 2.5% to 3.5% in 2026, compared with US inflation, which is currently hovering around 3.4%. It also plans to distribute $8.9bn to shareholders, representing all of its free cash flow.

Although in the past we have not spared the group in Fundamentals to watch at PepsiCo, previously published in these same columns, it must be acknowledged that not everything is negative, and that the glass sometimes deserves to be viewed as half full rather than half empty.

PepsiCo’s sacrosanct dividend, which remains adequately covered, is indeed beginning to look increasingly attractive as the stock price continues to fall. It has quintupled over the past 20 years and, let us recall, is now in its 54th consecutive year of increases.

In this regard, the dividend yield, which is trading at an all-time high, could appeal to investors who favor such stocks, all the more so because it is paired with a stock market valuation that, measured as a multiple of earnings, has returned to its historical lows, the very levels reached during the worst moments of the subprime crisis in 2008 and the pandemic 12 years later.

Over the past decade, excluding exceptional items, PepsiCo has seen its EPS grow by an average of 5.3% p.a. Its dividend per share, meanwhile, has increased at an annualized rate of 7%. These figures should be compared with a stock yield that is currently about 50 basis points below that of 10-year US Treasury notes.

PepsiCo, Inc. is one of the worldwide leaders in producing non-alcoholic beverages and snacks. Net sales break down by area of activity as follows: – North America (60%): sale of beverages (50.3% of net sales; sodas, concentrated juices, water, tea and coffee-based beverages; Aquafina, Diet Mountain Dew, Diet Pepsi, Gatorade, Gatorade Zero, Mountain Dew, Pepsi, Propel brands, etc.), snacks (44.9%; chips, tortillas and pretzels; Lay’s, Doritos, Tostitos, Cheetos, Fritos, Ruffles, etc.), and cereals (4.8%; ready-to-eat cereals, rice, wheat, etc.); – Europe (15.1%): sale of snacks (Cheetos, Chipita, Doritos, Lay’s, Ruffles and Walkers brands) and beverages (7UP, Diet Pepsi, Lubimy Sad, Mirinda, Pepsi and Pepsi Max); – Latin America (12.8%): sales of snacks (Cheetos, Doritos, Emperador, Lay’s, Mabel, Marias Gamesa, Ruffles, Sabritas, Saladitas and Tostitos brands) and beverages (7UP, Gatorade, H2oh!, Manzanita Sol, Mirinda, Pepsi, Pepsi Black, San Carlos and Toddy); – Africa/Middle East/South Asia (6.8%): sale of snacks (Chipsy, Doritos, Kurkure, Lay’s, Sasko, Spekko and White Star brands) and beverages (7UP, Aquafina, Mirinda, Mountain Dew and Pepsi); – Asia/Pacific/Australia/New Zealand (5.3%): sale of snacks (BaiCaoWei, Cheetos, Doritos, Lay’s and Smith’s brands), beverages and syrups (7UP, Aquafina, Mirinda, Mountain Dew, Pepsi and Sting). Net sales are distributed geographically as follows: the United States (56.3%), Mexico (7.8%), Russia (4.2%), Canada (4.1%), China (3%), the United Kingdom (2.2%), South Africa (2%), Brazil (1.9%) and other (18.5%).

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