Key Points

• Sales growth has been anemic.

• The board of directors recently increased the dividend by 5%.

• The share price drop has created a better valuation.

• 10 stocks we like better than PepsiCo ›

PepsiCo (NASDAQ: PEP) has become a household name. In fact, it's likely you have at least one of the company's products in your home right now.

However, investors need to consider more than the ubiquity of a company's product before purchasing the stock. You should analyze a company's prospects before committing to an investment.

It's particularly imperative when the shares have dropped by quite a bit. In the case of PepsiCo, the stock has fallen about 23% over the last year through June 3.

It's time to take a closer look at PepsiCo to see if the market has overreacted to short-term concerns or whether the drop is foretelling long-term issues.

Slumping sales

PepsiCo sells its beverages and food items under brands like Pepsi, Gatorade, and Quaker. However, even this large consumer staples company isn't immune from larger economic forces.

First-quarter revenue only grew about 1% compared to a year ago. Price increases contributed 3 percentage points but lower volume subtracted 2 percentage points. The company adjusted these figures to exclude foreign-currency translation effects and the impact of acquisitions and divestitures. On an adjusted basis, operating profitability dropped 1%.

Certainly, those numbers aren't very encouraging, and volume has been weak for some time. Investors would like to see higher volume driving faster revenue growth. However, it's important to remember that consumers have been weary from persistently high inflation that has squeezed their wallets, and tariffs add another level of uncertainty.

Management noted the economic challenges when projecting a low-single-digit percentage increase in revenue this year and flat earnings per share compared to 2024.

However, these short-term global economic factors don't change my optimistic view about PepsiCo's long-term prospects given its powerful brands. At some point, prices will stabilize and people will return to their more normal purchasing habits. When they do, it's hard to imagine they won't reach for a bottle of soda or chips sold under PepsiCo's umbrella.

Alluring dividends

If you like dividends, PepsiCo fits the bill. In fact, the company has built quite a track record.

The board of directors raised the company's quarterly dividend by 5%, starting in June. The new quarterly rate is $1.4225, or $5.69 annually. It's also a strong indication of management's and the board's confidence in PepsiCo's future.