3 Reasons to Buy PepsiCo Stock Like There's No Tomorrow

PepsiCo (NASDAQ: PEP) stock is getting clobbered right now. The stock price has fallen 30% from its peak in 2023. The consumer staples giant is deep into its own personal bear market. The reasons for the drop vary and are related to short-term issues for the most part, but they are enough to have some investors worried.

But if you are an investor who buys stocks with the intention to hold for decades and not days, this is an opportunity to buy PepsiCo stock while it is cheap. If you wait for some distant tomorrow, you may miss the opportunity. Here are three reasons it might be time to hit the buy button on PepsiCo.

1. PepsiCo's dividend yield is near the highest levels in its history

If you are a dividend investor, the deep price decline in PepsiCo's shares has changed the investment equation. The price drop has pushed the stock's dividend yield to the highest point in recent memory at just over 4%. That's an important fact.

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The rule of thumb is that investors can pull out 4% of their assets annually as cash in retirement without the risk of running out of money. But if you can get that 4% just from dividends, well, you won't need to touch the principal. If you don't touch principal, the chance of eventually running out of money is reduced even further.

Given that PepsiCo has increased its dividend annually for over 50 consecutive years, meanwhile, it has clearly survived hard times before. And, thus, this Dividend King's dividend appears to be safe and its lofty dividend yield appears likely to be a buying opportunity for long-term dividend investors right now.

2. PepsiCo's valuation metrics are signaling a cheap price

Investors don't just have to trust a historically high dividend yield on the valuation front. More traditional valuation metrics like the price-to-sales (P/S), price-to-earnings (P/E), and price-to-book value (P/BV) ratios are additional tools at your disposal when it comes to assessing value. And when it comes to PepsiCo, they all signal a cheap price.

For example, PepsiCo's P/S ratio is currently around 2x versus a five-year average of around 2.7x. Its P/E ratio is currently at 19.6x compared to a long-term average of roughly 26.6x. And its P/BV ratio is a little under 10x versus a five-year average of over 13x. Very clearly, PepsiCo looks like it is historically cheap if you buy it today.

3. PepsiCo is dealing with adversity

While points one and two are both clear positives for long-term investors, the cheap valuation and high yield exist for a reason. PepsiCo's growth has slowed, and it faces challenges from shifting consumer tastes and habits. But even good companies go through difficult periods. Given the company's ability to continue increasing its dividend through the ups and downs over the past 50 years, however, it seems like it would be a good idea to give management the benefit of the doubt as it is facing hard times again.

Notably, management is adjusting, using the same playbook that has worked out so well before. First off, it is cutting costs and working on productivity improvements. Second, it is leaning into product innovation. And third, it is acquiring on-target brands, like Siete (Mexican American snacks and foods) and Poppi (probiotic beverages) to help keep pace with consumers' food and drink preferences. The changes PepsiCo is making won't lead to an overnight rebound in the business, but it will set the foundation for a return to the success that this consumer staples giant has long been known for.

It could get worse before it gets better

Buying PepsiCo today, despite the bad headlines, is likely to set dividend investors up for a lifetime of reliable income. That said, it requires buying when others are selling, which can be very hard. In fact, buying now might even mean having to suffer through even lower prices as the company muddles through its current headwinds. If you are having trouble pulling the trigger, consider buying a starter position with the goal of building it up over time. That way, you get your foot in the door for what might be one of the best opportunities in the food sector today.

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Reuben Gregg Brewer has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.