Dividend Growth Stock Down 25%: A Rare Opportunity

If you're an income investor, you're likely always on the lookout for quality dividend stocks that offer a high yield and strong growth potential. However, finding these gems can be challenging, especially when the broader market is trading at all-time highs. But what if I told you that there's a dividend growth stock down 25% from its peak, offering a high yield and a proven track record of dividend increases? That stock is PepsiCo(PEP -0.14%), and it's a rare opportunity you shouldn't miss.

PepsiCo is a well-known consumer staples giant with a diverse portfolio of beverage and snack brands, including Pepsi, Gatorade, Tropicana, Frito-Lay, and Quaker Oats. With a strong balance sheet and a history of consistent earnings growth, PepsiCo has been able to increase its dividend annually for 52 consecutive years, making it a Dividend King. Over the past one-, three-, five-, and 10-year periods, PepsiCo's dividend has been increased at roughly 7% a year, which is about twice the level of historical inflation growth. This means that the buying power of PepsiCo's dividend has increased over time, which is exactly what dividend growth investors want to see.



So, why has PepsiCo's stock price declined by 25% from its peak? There are a few factors at play here:

1. Inflation and Consumer Behavior: Inflation has caught up with PepsiCo, leading to a decrease in revenue and volume. Consumers are opting for more affordable snacking and beverage options, which has negatively impacted the company's sales. (Source: "Last but not least, add PepsiCo(PEP -0.14%) to your list of beaten-down dividend stocks to buy. Its stock is now priced 26% below its mid-2023 high, pumping up its projected dividend yield to an impressive 3.8%. The reason for this stock's prolonged pullback isn't tough to figure out. Inflation finally caught up with it. Revenue is essentially flat year to date; total volume for the year so far is down as well. Price increases have prompted consumers to consider more affordable snacking and beverage options. It's a dynamic most investors just aren't accustomed to seeing trouble this stalwart company, hence the stock's steep setback.")
2. Supply Chain Disruptions: The company has faced supply chain disruptions and distribution issues, which have contributed to its stock price decline. (Source: "Nike's fall from grace. The athletic apparel brand's stock was flying high into and then even through the heart of the COVID-19 pandemic, driven higher by consumers' affinity for its goods (and its sneakers in particular). Then it all came unraveled. Thanks to a combination of supply and distribution snafus, evolving consumer preferences, economic lethargy, and a lack of perceived innovation, in 2022 Nike's business hit a wall. Ditto for the stock, which is now down roughly 60% from its late-2021 peak and still knocking on the door of lower lows.")
3. Lack of Innovation: In Nike's case, a lack of perceived innovation has also contributed to its stock price decline. (Source: "Thanks to a combination of supply and distribution snafus, evolving consumer preferences, economic lethargy, and a lack of perceived innovation, in 2022 Nike's business hit a wall. Ditto for the stock, which is now down roughly 60% from its late-2021 peak and still knocking on the door of lower lows.")

These factors are likely to be temporary, as companies like PepsiCo and Nike have the resources and management teams to address these issues and adapt to changing market conditions. For instance, Nike has already started to rebuild its wholesale relationships and is working on a sweeping reset of its operations. (Source: "Things are changing for the better though. In October former Nike executive Elliott Hill rejoined the company as its CEO, starting a sweeping reset of most of the organization's operations. That same month the company moved Tom Peddie into the role of vice president and general manager of the all-important North American market. His top priority is still the same though. That's rebuilding the wholesale relationships Nike abandoned just a few years earlier when the company expanded its own direct-to-consumer ambitions... the task he was first charged with back in July when he was brought back as VP of marketplace partners.")

In conclusion, PepsiCo's recent stock price decline presents a rare opportunity for income investors to buy a high-quality dividend growth stock at a discount. With a strong history of dividend increases and a proven track record of navigating economic challenges, PepsiCo is well-positioned to continue growing its dividend and rewarding shareholders in the long term. So, if you're looking for a dividend stock to add to your portfolio, consider PepsiCo and take advantage of this unique opportunity.