PepsiCo (PEP): A Dividend Stock Deep Dive
Investing in dividend-paying stocks has exploded in popularity, with conservative investors pouring billions into funds built on the principle that consistent dividend raisers deliver superior long-term returns. But are all dividend stocks created equal? This article examines PepsiCo, Inc. (PEP), a prominent player in the dividend arena, and how it stacks up against other high-yield dividend stocks in our recent list of the 15 Best High-Yield Dividend Stocks for 2025 and Beyond.
The Allure (and Risks) of High-Yield Dividend Stocks
While research suggests dividend-growing companies historically perform well, recent studies by firms like Ned Davis Research indicate that high-yielding dividend stocks might be even more rewarding. A stock's dividend yield, calculated by dividing the annual dividend by the share price, reflects the income per dollar invested. However, high yields can also signify higher volatility and potential risks.
- Higher Volatility: High-yield stocks often experience more price swings than others.
- Portfolio Turnover: Higher volatility may lead to more frequent adjustments in your investment portfolio.
- Potential Dividend Cuts: A high yield driven by a falling stock price can sometimes signal financial trouble, potentially leading to dividend reductions.
Financial advisors stress the importance of thorough due diligence. Don't just focus on the yield; examine the company's overall financial health, including its balance sheet strength and earnings-per-share (EPS) growth prospects. As Jason Alonzo of Harbor Capital Advisors wisely notes, "Make sure the company has a strong balance sheet and its prospects for earnings-per-share growth are strong, so the company is well-positioned to maintain dividend payments in the future even if there is a recession."
PepsiCo (PEP): A 54-Year Dividend Growth Streak
PepsiCo (PEP), a giant in the food and beverage industry, boasts an impressive 54-year streak of dividend increases. As of May 9th, 2025, PEP's dividend yield stood at 4.36%. This places it ninth on our list of best high-yield dividend stocks. However, PEP's stock has fallen over 13% since the beginning of 2025 due to lowered guidance, projecting flat core EPS growth.
First Quarter 2025 Results: While revenue exceeded analyst expectations at $17.9 billion, it was still down 1.8% year-over-year. Beverage volume showed no growth, and convenient foods sales dropped 3%, reflecting weaker consumer demand.
Despite these challenges, PepsiCo declared a 5% increase in its quarterly dividend, demonstrating its commitment to shareholder returns. However, the company's revised outlook of a 3% decline in core EPS for 2025 compared to its previous projections raises concerns. This highlights the crucial need to delve deeper than surface-level metrics when evaluating dividend stocks.
PEP's Position Within the Broader Dividend Landscape
While PEP's long dividend history and recent dividend hike are positive signs, its current financial performance and lowered guidance warrant careful consideration. Our analysis suggests that several other deeply undervalued dividend stocks on our list present potentially stronger returns, potentially within shorter timeframes. The ranking of PEP at number nine reflects this assessment.
Conclusion
PepsiCo (PEP) remains a significant player in the high-yield dividend stock market, boasting a strong track record. However, its recent performance and lowered projections necessitate a thorough evaluation of its financial fundamentals before investment. The current market presents diverse opportunities within the dividend space. By focusing on a company's underlying financial strength and growth prospects, alongside its dividend history, investors can make more informed decisions to build a robust and diversified portfolio. Consider exploring our report on deeply undervalued dividend stocks for potentially more promising alternatives.
