A Few Years From Now, You'll Wish You Bought This Undervalued Stock

My investment approach is focused around relative dividend yield, a non-traditional valuation tool. Essentially, I prefer to buy companies that have historically high yields.

Right now, there are a lot of consumer staples companies that fit that bill. I own a few of them, but there's one that stands out in my opinion and now could be a great time to add this 4% yielding Dividend King to your portfolio. Here's why.

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Starting one step up: Coca-Cola

Coca-Cola (NYSE: KO) is not the stock I'm talking about, but it is an important reference point. Right now, the maker of Coke has a 3% yield and its valuation looks relatively attractive. To put some numbers on that, its price-to-sales, price-to-earnings, and price-to-book value ratios are all below their five-year averages.

In many ways, the beverage maker is attractive right now as an investment. It is even performing fairly well as a business, with organic sales and earnings per share advancing 6% each in the third quarter of 2025.

There's just one problem with this Dividend King consumer staples giant. The yield is only middle of the road, historically speaking. I think Coca-Cola is trading hands at a fair price, which is a good entry point if you are a conservative income investor. I'm willing to take on a little more risk.

Coca-Cola competitor PepsiCo is struggling a bit

Instead of Coca-Cola, I bought PepsiCo (NASDAQ: PEP). It is a direct competitor in the beverage space, but it is also the No. 1 player in salty snacks (Frito-Lay) and has a large and respected packaged food business (Quaker Oats). I'm a fan of diversification, so having more lines of business is attractive to me over what is, basically, a one-trick pony in Coca-Cola.

Meanwhile, PepsiCo has a 4% dividend yield, which is near the highest levels in the company's history. That hints at a very attractive valuation, which is backed up by the fact that PepsiCo's P/S and P/B ratios are below their five-year averages. To be fair, the P/E ratio is above its five-year average, but earnings are highly volatile from year to year, whereas sales and book value are more consistent. With three out of four valuation tools, and the most consistent of the quartet, all indicating a historically cheap price, I'm trusting the dividend yield's deep value call.

That said, like Coca-Cola, PepsiCo is a Dividend King. A company can't create a 50-plus year streak of annual dividend increases by accident. It has to have a strong business model that is well-executed in both good times and bad. I'm confident that PepsiCo will muddle through the issues it is facing today just like it has before.

To be fair, there are problems. Notably, PepsiCo's third quarter 2025 organic sales were up just 1.3% and its earnings dropped 11% year over year. There's a reason why the stock is unloved.

But long-term investors should note that PepsiCo is making changes to its brand portfolio to realign itself with consumers. That has included acquisitions of on-target brands like Siete and Poppi. And it has included brand investment and innovation, with protein-oriented and other healthier versions of classic brands being brought to market.

There's no quick and simple solution to what ails PepsiCo today, but if history is any guide, management will figure out a way to get back on track. The early steps of that process are already underway.

Take the long view with PepsiCo

Coca-Cola is a great company and I wouldn't dissuade anyone from buying the stock today. However, if you are a long-term dividend investor like me, and you can stomach a little near-term uncertainty, PepsiCo looks like it is being deeply undervalued.

If you think in decades and not days, you'll probably want to invest in PepsiCo and its attractively high yield. If you don't, there's a good chance you'll look back a few years from now and wish you had.

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.