1 Dividend Growth Stock Down 25% to Buy Right Now

Share prices of PepsiCo (NASDAQ: PEP) hit an all-time high in the first half of 2023. It has been downhill since that point, with the stock now around 25% below that peak.

If you have been watching this consumer staples giant waiting for a good entry price, this is it. Here's why you should buy PepsiCo right now if you are a dividend growth investor.

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What does PepsiCo do?

Most investors probably know PepsiCo is the company behind the beverage with which it shares a name. But its beverage operation is so much larger than just that one brand, including such icons as Gatorade and Tropicana (via a joint venture), among many others. All in, it is the No. 2 beverage company in the U.S. behind Coca-Cola.

Image source: Getty Images.

If that's all PepsiCo did, it wouldn't be that exciting an investment. Most investors would be better off simply buying Coca-Cola, which is suffering through its own stock malaise. But PepsiCo also happens to be the No. 1 brand in salty snacks via its Frito-Lay business. And on top of that, it also has a portfolio of packaged food brands that fall into its Quaker Oats division.

PepsiCo is a food and beverage giant with leading brands across its portfolio. It has the marketing, research and development, and distribution scale to support the business, differentiating it from smaller peers and allowing it to compete very well against industry giants throughout the consumer staples sector. If you were looking to own just a single food company, PepsiCo would cover an immense amount of ground.

Data by YCharts.

Why buy PepsiCo right now?

The big reason why a dividend growth investor would want to buy PepsiCo today is that its yield is near historical highs at roughly 3.6%. This suggests that Wall Street has placed the company on the deep discount rack. This is a view that's backed up by the stock's price-to-sales and price-to-earnings ratios being below their five-year averages.

But there's another dividend fact that supports the buy decision. PepsiCo has increased its dividend annually for 52 consecutive years. That puts this consumer staples giant into the highly elite group of companies known as Dividend Kings. It requires consistent performance through good markets and bad ones to create a dividend track record like that. Clearly, PepsiCo has a good business model, and there's no reason to believe that it has suddenly, and permanently, stopped working.

Then there's the dividend growth side of the equation. Over the past one-, three-, five-, and 10-year periods, PepsiCo's dividend has been increased at roughly 7% a year. That's about twice the level of historical inflation growth, meaning that the buying power of PepsiCo's dividend has increased over time. This is exactly what dividend growth investors want to see.

PepsiCo will likely survive what ails it

To state the obvious, a stock usually doesn't fall 25% for no reason. PepsiCo isn't hitting on all cylinders right now as a business. And there are wider concerns about the entire packaged food sector, given new weight loss drugs and what appears to be a growing health-conscious ethos in the U.S. market.

However, even with the headwinds the company is facing, it was able to grow core earnings, which pulls out one-time items, 5% year over year in the third quarter of 2024, with that figure up 7% through the first nine months of the year.

This does not look like a company that has fallen off the rails. If you can handle collecting a historically high yield from a company with a strong history of dividend growth, you'll be paid well to wait for the better days that are highly likely to arrive in the not-too-distant future.

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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.