The stock market has been volatile at the start of 2025, with many high-tech stocks well off their highs as some investors question their high valuations and an uncertain economic environment. However, even in an uncertain market, there are still many things investors can count on, such as beverage and snack company Pepsi (PEP) and its consistent dividend growth. I feel strongly on Pepsi stock based on its attractive dividend yield, its long and proud history of consistently growing its dividend over many decades, its modest valuation, and the enduring demand for its products.
There is little doubt that Pepsi is a top class stock as it is an iconic American company with a name and logo that billions of people around the world instantly recognize. However, that doesn't mean the stock is trading at a premium, blue-chip valuation.
In fact, after a 12.8% decline over the past year, Pepsi shares trade at just 17.8 times full-year 2024 earnings estimates, and an even cheaper December 2025 consensus earnings estimate at 16.9 times. These numbers make Pepsi significantly cheaper than the broader market, such as the S&P 500 (SPX) currently trades for 24.8 times earnings. Interestingly, Pepsi is also cheaper than its archrival Coca-Cola ( KO ), which trades for 20.9 times 2025 earnings estimates.
This cheap valuation should give Pepsi a strong level of downside protection in a volatile market and leave plenty of room for multiple expansion in a bullish market environment, especially since the stock has often traded at higher P/E ratios over the years .
In addition to this cheap valuation, Pepsi is a highest dividend stock. It starts with the dividend product — currently Pepsi yields an attractive 3.7%which is almost triple the S&P 500's 1.3% yield.
Beyond the above average product, Pepsi is attractive dividend stock based on its multi-decade commitment to paying and growing its dividend. Pepsi has paid dividends to its shareholders for 52 consecutive years, and has increased the size of its payout in each of these 52 years. This consistency makes Pepsi the “Dividend King,” placing it in the rare company of stocks that have raised their dividend payments for at least 50 consecutive years. Other notable Dividend Kings include Coca-Cola, Target (TGT), Johnson & Johnson (JNJ), AbbVie (ABBV) and Walmart (WMT).
In a market where not many things are certain, it's nice to be able to 'set it and forget it' with a Dividend King like Pepsi that increases its dividend payout like clockwork every year.
There is some concern among investors that consumer demand for carbonated soft drinks will decline in developed markets such as the US, but Pepsi is fairly well positioned for this risk. Carbonated soft drinks have enough runway for growth in international and emerging markets. Pepsi's brand portfolio also includes plenty of beverage options for developed market consumers looking for healthier beverages, such as Bubly sparkling water, Pure Leaf iced tea, and Tazo tea.
Finally, it is important to remember that there is much more to Pepsi than just drinks – it is also the top player in the lucrative savory snack market, worth over $250 billion annually, with leading brands such as Doritos, Cheeto's, Lay's, Fritos, and Ruffles are all in his arsenal.
Late last year, the company also announced a deal to acquire the 50% of Sabra (best known for its hummus as well as other dips and spreads) it didn't already own, as well as a $1.2 billion deal for maker of tortilla chips. Siete, which shows that the company has its sights set on long-term growth in this area.
Another nice thing about Pepsi is that it is a consumer staples company that makes products that enjoy enduring consumer demand. Even in a challenging macroeconomic environment, most customers who enjoy Pepsi or Diet Pepsi will continue to pick it up on their weekly grocery trips. In an inflationary environment, consumers may be forced to delay or not buy more tickets, but a six-pack or case of Pepsi or Diet Pepsi still represents only a small percentage of their budget that they are unlikely to to break
The same can be said for the savory and salty snacks that Pepsi sells or staples like Quaker Oats oatmeal.
Turning to Wall Street, analysts have a Moderate Buy consensus rating on PEP stock based on four Buys, three Holds, and zero Sells assigned in the last three months, as indicated in the graphic below. After a A 9% drop in its share price over the last year, the PEP average price target of $167.86 per share suggesting a potential 13.6% upside.
I'm bullish on Pepsi based on its attractive, above-average dividend yield of 3.7% and its long and proud history of growing its dividend payout over five decades. In a market that runs hot and cold and where trends can be swift, this kind of long-term reliability is something to celebrate.
I'm also bullish on Pepsi stock based on its below-average valuation — which should give investors decent downside protection and plenty of upside exposure — and its strong business of selling consumer staples with demand permanent This gives the stock a strong defensive backbone.
