My top growth-oriented idea this year is PepsiCo Inc. (PEP). The company is facing several challenges, including input cost inflation, margin compression, weak consumer demand, and operational execution challenges. But I view the stock as a long-term buy, notes Prakash Kolli, editor of Dividend Power.
PepsiCo has increased prices to maintain profitability, but at the expense of declining sales volumes. Poor results pressured the share price during much of 2025. However, a recovery in the past couple of months has benefited investors. The share price was down only around 0.7% year-to-date in mid-December, and 3.6% over the trailing twelve months.
Today, PepsiCo is the global market leader in salty snacks with about 23% market share. It is also number two in non-alcoholic beverages. It has a strong portfolio of recognized food and beverage brands, including Doritos, Lays, Cheetos, Tostitos, Quaker, Gatorade, Pepsi, Mountain Dew, and Aquafina, many of which are $1 billion brands. Total revenue was approximately $91,854 million in 2024 and $92,366 million over the last 12 months.
Despite the apparent dominance, changing consumer tastes have caused PepsiCo to lose market share in the salty snack business, and its flagship beverage has dropped to fourth place in US sales volumes. As a result, PepsiCo’s recent challenges have attracted the attention of activist investors. Namely, Elliott Investment Management acquired a $4 billion stake in September 2025.
The company and Elliott recently came to a settlement, which may improve operations and serve as a catalyst for a higher share price. PepsiCo will reduce expenses, cut the number of products in its portfolio by 20%, lower food prices, and review its supply chain. Additionally, the firm replaced its CFO in October.
The company also rewards shareholders through consistent dividend growth and a share buyback program. PepsiCo owns a 53-year streak of increases, making it a Dividend King. It is also a well-known Dividend Aristocrat.
While investors are waiting for a turnaround to take hold and results to improve, they are receiving a 3.7% dividend yield on their stock. The trailing five-year distribution growth rate is about 6.9%, slightly lower than 7.4% in the past decade. While the payout ratio of approximately 71% is higher than desired, PepsiCo has a stable business and consistent cash flows to pay the dividend.
PepsiCo is currently trading at an earnings multiple of 18.6X, which is less than the 5-year and 10-year ranges. Thus, it is inexpensive compared to the past ranges and to the broader market. The stock has decent total return potential if operational results improve and it returns to historical valuations.
Recommended Action: Buy PEP.
