The stock market has been volatile in early 2025, with many top tech stocks well off their highs, some investors questioning their lofty valuations and an uncertain economic environment. However, even in an uncertain market, there are still plenty of things investors can count on, like beverage and snack company Pepsi (PEP) and its consistent dividend growth. I am bullish on Pepsi stock because of its attractive dividend yield, long and proud history of consistently increasing its dividend over many decades, modest valuation, and sustainable demand for its products.
There is no doubt that Pepsi is a blue-chip stock since it is an iconic American company whose name and logo are instantly recognizable to billions of people around the world. However, that doesn’t mean the stock is trading at a blue-chip valuation.
In fact, after falling 12.8% over the past year, Pepsi shares are only hitting 17.8 times full-year 2024 earnings estimates, let alone 16.9 times consensus earnings estimates for December 2025. These numbers make Pepsi significantly cheaper than the broader market, such as the S&P 500 (SPX) is currently trading at 24.8 times earnings. Interestingly, Pepsi is also cheaper than rival Coca-Cola (KO), which trades at 20.9 times 2025 earnings estimates.
This cheap valuation should give Pepsi a high degree of downside protection in a volatile market and leave plenty of room for multiple expansion in a bull market environment, especially since the stock has frequently traded at higher P/E ratios over the years.
In addition to this inexpensive valuation, Pepsi is a high dividend stock. It starts with the dividend yield: Pepsi currently reports an attractive 3.7% yield, nearly triple the S&P 500’s 1.3% yield.
Beyond the above-average yield, Pepsi is an attractive dividend stock because of 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 amount of its distributions in each of those 52 years. This consistency makes Pepsi a “dividend king,” placing it among the few stocks that have increased their dividend payouts 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 few things are certain, it’s nice to be able to “set it and forget it” with a dividend king like Pepsi increasing its dividend like clockwork every year.
Investors fear a decline in consumer demand for soft drinks in developed markets like the United States, but Pepsi is fairly well positioned to weather that risk. Soft drinks have ample growth opportunities in international and emerging markets. Additionally, the Pepsi brand portfolio offers numerous beverage options for consumers in developed markets seeking healthier beverages, such as Bubly Sparkling Water, Pure Leaf Iced Tea and Tazo Tea.
Finally, it’s important to remember that Pepsi is about more than just drinks: it’s also the number one player in the lucrative salty snacks market, worth more than $250 billion a year, with leading brands like Doritos, Cheeto’s, Lay’s, Fritos and Ruffles in its 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) that it did not already own, as well as a $1.2 billion deal for tortilla chip maker. Siete, demonstrating that the company aims for long-term growth in this area.
Another advantage of Pepsi is that it is a consumer staples company that produces products that enjoy sustainable consumer demand. Even in a difficult macroeconomic environment, most customers who enjoy Pepsi or Diet Pepsi will continue to purchase them during their weekly shopping trips. In an inflationary environment, consumers may be forced to delay or forgo larger purchases, but a six-pack or case of Pepsi or Diet Pepsi still represents only a small percentage of their budget that it is unlikely they will reduce.
The same can be said about the aforementioned salty, savory snacks that Pepsi sells or staples like Quaker Oats oatmeal.
As for Wall Street, analysts have a Moderate Buy consensus rating on PEP stock based on four buys, three holds and zero sells assigned over the last three months, as shown in the chart below. below. After a 9% decline in its stock price over the past year, PEP’s average price target of $167.86 per share implies 13.6% upside potential.
See more PEP analyst notes
I’m bullish on Pepsi because of its attractive, above-average dividend yield of 3.7% and its long, proud history of increasing its dividend payout for more than five decades. In a hot and cold market and where trends can be fleeting, this type of long-term reliability is something to celebrate.
I’m also bullish on Pepsi stock due to its below-average valuation (which should provide investors with decent downside protection and strong upside exposure) and strong consumer goods sales business base with sustainable demand. This gives the stock a strong defensive backbone.
