Preferred Investment: High-Dividend, Secure Option with High Yield, Ideal for Purchase Despite Potential 2025 Stock Market Crash
Understanding long-term investing involves comprehending market drivers. In 2023 and 2024, major indices have been driven primarily by megacap growth stocks.
Investors who wish to sidestep this trend have benefited from enticing interest rates from Treasury bills, CDs, or high-yield savings accounts. In such circumstances, high-dividend stocks may not seem as alluring.
However, during a stock market correction, high-dividend stocks can prove to be an investor's best ally. Dividends provide a passive income source without the necessity of selling stocks. This can prove beneficial when stock prices plummet.
PepsiCo (PEP 0.30%), a prominent high-dividend stock, is currently hovering near a three-year low. Let's delve into why this might be an excellent opportunity for patient investors, and why PepsiCo could thrive even in a market correction.
Manageable decline in operations
In addition to a plethora of beverage brands like Pepsi, Gatorade, and Mountain Dew, PepsiCo also owns Frito-Lay and Quaker Oats, expanding its portfolio. However, PepsiCo's growth has slowed, with sales volumes dwindling across its segments and geographies. Consumers are resisting Pepsi's persistent price increases.
To bolster demand, PepsiCo is now offering larger package sizes, making its products comparatively better value than competitors' offerings. The company isn't at its peak performance, so its stock price has been stagnant.
This is merely a minor downturn for PepsiCo, as it's still enhancing organic sales and earnings at a rate below 10%. Even in a challenging environment, it's maintaining growth and should regain robust earnings growth in the next fiscal year.
Recession-resistant business model
PepsiCo's earnings remain stable despite economic conditions due to its diversification across non-alcoholic beverages and snack categories. When consumers tighten their belts, they typically scale back on large discretionary purchases, not low-cost snacks.
PepsiCo can prosper during a market correction. When investors are bullish, they might pay a premium for a company's projected earnings. However, when investors are bearish, they may favor companies that are already performing well and are likely to maintain their performance amidst economic cycles. PepsiCo's strong brand portfolio and marketing and distribution capabilities make it an attractive option even for pessimistic investors.
The stock market experienced a significant correction in 2022, with the S&P 500 dropping by 19.4% and the Nasdaq Composite crashing by 33.1%. In 2022, PepsiCo's stock soared by 4%. While PepsiCo may not be as resilient during the next correction, its performance during 2022 demonstrated why value stocks like PepsiCo can flourish during a growth-driven correction.
Stable and increasing dividend
PepsiCo is a Dividend King, having increased its annual payout to investors for 52 consecutive years. The stock market correction, coupled with regular dividend hikes, has boosted PepsiCo's yield to 3.5%. This is the highest yield PepsiCo has offered in the last 15 years, excluding the brief market decline triggered by the COVID-19 pandemic in March 2020. However, a company's capacity to maintain future dividend increases is more significant than its past dividend increase history or current yield.
On Nov. 19, PepsiCo raised its dividend by 7%. The company should have no difficulty affording a similar increase in 2025. Analyst forecasts suggest PepsiCo will generate $8.15 in fiscal 2024 earnings per share (EPS) and $8.61 in fiscal 2025 EPS. Assuming a 7% increase in dividends, PepsiCo would be distributing approximately two-thirds of its earnings in dividends, which is reasonable for a consumer staples company.
A high-conviction investment for the new year
PepsiCo is an ideal investment for risk-averse investors seeking value in 2025. It boasts a price-to-earnings (P/E) ratio of 22.6 and a forward P/E of only 18.8. For reference, its median P/E over the past decade is 26.1.
PepsiCo can perform well even during economic downturns, as demonstrated by its 52-year track record of dividend increases, which occurred under various market conditions. PepsiCo's yield of 3.5% is significantly higher than the S&P 500's yield of just 1.2% and higher than the broader consumer staples sector's yield of 2.5%. PepsiCo yields more than other consumer staples Dividend Kings like Coca-Cola, Procter & Gamble, and Walmart, making it a compelling source of passive income.
In conclusion, PepsiCo is one of the best dividend stocks to invest in 2025.
In light of the text, two sentences that contain the words ['money', 'finance', 'investing'] could be:
Investors seeking stable income streams might consider finance options such as high-dividend stocks like PepsiCo, which have consistently increased their dividends for over five decades. During periods of market volatility and economic uncertainty, investing in companies with strong financials, like PepsiCo, can help safeguard your money's value.
