Most Investors Overlook This. I'm Buying PepsiCo for Its Dividend.

I've always kept a close eye on PepsiCo (NASDAQ: PEP), mostly because of its better-than-average dividend yield and its status as a Dividend King, meaning a company that increased its dividend for at least 50 consecutive years.

If you're asking "what is the best dividend stock" to buy right now, PepsiCo is one of the first names worth a good look, especially after its recent sell-off. However, the stock has been battered over the last year, reaching as high as $171 before falling to its current level around $142. Many investors attribute the drop to weaker volume, rising operating costs, and flat earnings growth over the last couple of years.

But several things changed recently, many for the better, and that is enough to make investors take another look at PepsiCo at today's valuation. That brings us to the key question: Is PepsiCo's story pointing to a turnaround, or could it be a value trap, as many fear?

Image source: Getty Images.

PepsiCo's turnaround hinges on international strength, not the U.S.

First, let's look at what is not working in the turnaround story.

PepsiCo Foods North America (PFNA) has not been a standout over the last few years, and that remained true in the second quarter of 2026. Sales volume was flat year over year for the quarter, while core constant-currency operating profit, a non-GAAP measure that removes certain items and currency effects, fell 8%. Meanwhile, PepsiCo Beverages North America (PBNA) reported that operating margin decreased by 90 basis points.

This remains a big deal because the U.S. has historically been PepsiCo's largest market, and weakness there has been one of the primary reasons the stock has been down over the last few years.

But the story is changing.

In the second quarter, the company reported international markets now account for two-thirds of the company's total beverage volume and more than 50% of its total food volume. Management also said the international business is expected to cross $40 billion in revenue this year.

Based on 2025 revenue and management's 4% to 6% top-line growth guidance for 2026, that $40 billion figure would represent more than 40% of the company's total sales. The picture improves further when you consider that international operating margins grew by 100 basis points due to what the company termed "improved efficiency."

And the icing on top? Year-to-date global food volume growth is the company's fastest since 2022.

In other words, PepsiCo's recent numbers suggest it is becoming less dependent on U.S. markets and moving toward broader international exposure. And because international markets were a smaller piece of the pie before, they now have more room to grow.

PepsiCo's dividend looks built to pay you while you wait

The most impressive part of PepsiCo's story is that it has increased its dividend throughout its struggles, one reason it can show up in the conversation when investors debate what is the best dividend stock for long-term portfolios.

In 2026, the company announced a 4% dividend raise, bringing its annualized payout to $5.92. That works out to about a 4.1% forward yield, above the average yield of roughly 2.6% for Dividend Kings.

This year also represents PepsiCo's 54th consecutive annual dividend increase. It is worth noting that PepsiCo's payout ratio is around 68%, which is not unusual for food and beverage companies. Even Coca-Cola's payout ratio is around 64% right now.

Meanwhile, the price slump made PepsiCo look more attractive on a valuation basis. Its forward price-to-earnings (P/E) ratio is now around 18.6 times, compared with the sector median of 20.98x.

Growing earnings are always nice, but this tells me PepsiCo does not need to execute perfectly for the story to work at today's price. It simply needs to stay the course and keep proving the business is moving in the right direction while continuing to pay the dividend many investors overlook.

Wall Street is cautious, but the current price changes the risk

Understandably, Wall Street is less forgiving of PepsiCo's recent numbers. It still has a moderate buy rating from a consensus of 23 analysts, but like its stock price, the overall score has trended down over the last three months.

PepsiCo has a lot to prove, particularly in North America. Still, I think the current valuation is enough to make me a buyer. That, and the dividend, of course. Sure, the company is not the fastest-growing Dividend King right now, but at this price, I will be getting paid to wait. That is the kind of overlooked advantage I want in my portfolio, and especially for investors trying to answer the question of which dividend stock offers the most dependable income.

Rick Orford has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.