Why Pepsi Stock is a Solid Investment

Pepsi stock drink

Author: Tim Phillips

October 2, 2020

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PepsiCo Inc (NASDAQ: PEP) advanced 1.6% on Thursday as investors digested another solid earnings report from the food & beverage giant.

Tim’s Take:

Pepsi versus Coca-Cola Co (NYSE: KO) always seemed to represent the quintessential battle in the world of sugary drinks. 

While Coke has come out the undisputed winner for most on the “taste test” front, Pepsi shares have actually trounced Coke’s over the past decade.

Pepsi’s latest earnings continued to confirm the food and drinks giant’s dominance. The company beat on both the top line and on an earnings per share (EPS) basis. 

Sales came in at US$18.09 billion, up 5.3% year-on-year, handily surpassing the US$17.23 billion expected. It’s a commendable showing in a time when the US economy has been severely handicapped by the Covid-19 pandemic.

Benefits of diversification

The main reason for this? Pepsi has benefitted from having a strong snacks division, also something which Coke doesn’t have. 

Known for its Doritos, Cheetos and Quaker-branded oatmeal, Pepsi has managed to offset the crushing fall in drinks sales earlier in the year (from the likes of restaurants and sporting events) by having a solid stable of food brands.

That was clear from the latest set of numbers, where its Frito-Lay and Quaker Foods businesses reported organic revenue growth of 6%.

Even in its latest quarter, drinks sales managed to rebound – up 3% year-on-year, with sparkling water, Lipton tea and Starbucks-licensed products all providing a boost.

If investors want reliability, along with a dividend yield of close to 3% from a company that has paid a rising dividend for 47 straight years, then Pepsi could be a good bet.

The company continues to get the key things right in a highly-challenging environment. Even though shares are only slightly up so far in 2020 (by just over 3%), Pepsi could be an unlikely winner in the eventual full reopening of the American economy.

Until then, just keep picking up that dividend and perhaps grab a few packets of Doritos while you’re at it as well.

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About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.