Dividend Stocks

Recently, after being asked to look at Beyond Meat (NASDAQ:BYND), I did a drive-by recommendation for Pepsico (NASDAQ:PEP). Well it turns out things are looking good for Pepsico stock.

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“The stock’s not bad even without Beyond Meat,” I wrote. “With it, it’s even tastier.” 

Today, after delivering fat earnings and a dividend raise, it’s tastier still.

Starting in June, the payout rises to $1.075 per quarter, or $4.30 per year. That brings the yield close to 3.2%, while the 30-year Treasury bond hovers at about 2%.

Why Pepsi Rules

While I’ve trained myself most of my life to love The Coca-Cola Co. (NYSE:KO), which built the city of Atlanta I call home, Pepsi is now the better investment. 

The reason is built into their Beyond Meat announcement.

Pepsi began diversifying away from drinks in 1965 when it bought Frito-Lay. It bought Quaker Oats in 2001 and is now the third-largest food company.

If it can successfully add protein to that food, Pepsico will have a huge win for the world’s diet. If it can sell the resulting products, it should make a big difference in the bottom line. Even without Beyond Meat, food is powering Pepsi’s results. This is mainly thanks to Quaker, which saw a 19% gain in operating profit, year over year, in the fourth quarter.  Quaker now grinds barley and corn along with oats, producing cookies and biscuits along with cereal.

CFO Hugh Johnston says the work at home trend helps Quaker, because people are eating breakfast at home. He expects that to continue. People who can work from home will keep doing it after the pandemic, rather than spend two hours dressing and driving.

Quaker’s breakfast foods should also be the first offerings to get the Beyond Meat treatment. The current product line is already high in protein, indicating consumers want that in their snacks. I’d love a healthier breakfast alongside the coffee at my desk.

Water Still Growing

Meanwhile, water sales continue to grow, thanks in part to Gatorade, the sports drink that came with the Quaker acquisition. Pepsi drink sales and profits grew as fast as those at Quaker during the quarter. Pepsi was able to dial-up profitability by reducing marketing costs. Markets in South Asia and Africa are now starting to take off, with profits up 56% in constant currency.

Former CEO Indra Nooyi left a strong bench of international executives behind her when she resigned in 2018 seeking new challenges. Pepsi is increasingly a global company.

A Better Bargain

Despite all this, investors are shunning value stocks like Pepsi. The share price is down 7.6% in the last year. The good earnings didn’t send the shares higher.

One reason is the market’s anticipation of inflation, which has sent bond prices up and made dividends less valuable. But outside energy prices, which we now know can come down as fast as they rise, there’s little sign of rising prices in the real economy.

The Bottom Line on Pepsico Stock

Bank of America (NYSE:BAC) analysts recently reiterated their “buy” rating on Pepsi stock, after talking things over with management.

I don’t have to listen to their spiel to know this is a good stock.

It’s not for everyone. If you’re in your 30s or 40s you’re welcome to chase speculative gains. But if you have a nest egg, if you’re one of the millions of baby boomers like me entering their sunset years, Pepsico stock deserves a place in your portfolio.

Remember, Pepsi isn’t just fizzy drinks. It’s breakfast, it’s snacks, and it’s growing internationally. Also, right now, it’s on sale. You can get a dividend over 3% with solid growth prospects. If you’re 66, like me, that’s what you’re looking for.

At the time of publication, Dana Blankenhorn was long BAC.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn