PepsiCo: Rare Opportunity to Buy at a Better Valuation: Part 6
PepsiCo (PEP) is a Dividend Aristocrat, Champion and blue-chip stalwart that has increased its dividend for 46 consecutive years. Therefore, it should be no surprise that just as we saw with Procter & Gamble in part 5, this blue-chip stalwart has traditionally commanded a higher valuation (earnings multiple) than the average stock. Over the past couple of decades at least, it has been a very rare occurrence to be able to invest in this company at a valuation that would be considered reasonable or attractive. In fact, prior to current time, it took the Great Recession of 2008 and 2009 to bring PepsiCo down to reasonable valuation levels as measured by P/E ratios.
Although PepsiCo is not back to those recessionary levels, its current low blended P/E ratio of 19.8 has not been available since 2013. Consequently, although I do not consider it a screaming bargain, I do consider it attractive relative to historical norms. To put PepsiCo’s current valuation into perspective, this blue-chip can be purchased today with a 3.4% current dividend yield which is hovering around the highest it has been over the past two decades. Moreover, PepsiCo does provide the prudent investor with the opportunity for above-average capital appreciation going forward in addition to its high current and growing dividend yield.
Furthermore, PepsiCo appears attractively valued over virtually every rational valuation metric that prudent value investors might consider. Later in the FAST Graphs analyze out loud video I will value PepsiCo utilizing several different metrics.
PepsiCo at a Glance
Although PepsiCo is best recognized for their soft drink business, they are more diversified than most of their competitors. As taken from their website below, the company has 22 iconic billion-dollar brands. And, the company is working hard to produce and market healthier options which are in vogue in certain circles. On the other hand, the company is not abandoning their traditional and some would say better tasting salty snacks and sugary beverages.