Why PepsiCo Is a Must-Buy for Long-Term Investors in a Volatile Market

In an era of economic uncertainty and market volatility, investors are increasingly drawn to companies that combine defensive qualities with growth potential. PepsiCo (PEP) fits this rare mold, offering a compelling case for long-term investment. By analyzing its undervaluation relative to historical and industry benchmarks, its robust dividend profile, and its strategic resilience in navigating macroeconomic headwinds, PepsiCo emerges as a standout opportunity for those seeking stability and compound returns.

Undervaluation: A Hidden Gem in the Consumer Staples Sector

PepsiCo's current valuation metrics suggest it is trading at a discount to both its historical averages and industry peers. As of July 18, 2025, the stock carries a P/E ratio of 26.04, calculated using a TTM EPS of $5.50 and a share price of $143.24. This figure is 2% above its 10-year average of 25.53 but remains below the 3-year (26.66) and 5-year (26.45) averages, indicating a moderate valuation. More compellingly, PepsiCo's P/E of 26.04 is 7% lower than the industry average of 28.1, a metric that includes higher multiples for peers like Monster Beverage Corp (39.1) and Coca-Cola Co (28.03).

This undervaluation is further supported by the company's forward P/E of 16.8, derived from projected 2025 earnings of $8.50 per share. Analysts have set a median price target of $147.59, implying a 3% upside from current levels, while more optimistic estimates suggest a 33% potential gain to $180.74. For long-term investors, these metrics highlight an attractive entry point for a company with a proven track record of navigating economic cycles.

Dividend Strength: A Pillar of Income and Growth

PepsiCo's dividend program is a cornerstone of its appeal to income-focused investors. The company currently offers a trailing dividend yield of 4.20%, significantly above the Consumer Defensive sector average of 2.74%. This yield is underpinned by a 51-year streak of consecutive dividend increases—a testament to the company's financial discipline and commitment to shareholder returns.

The dividend payout ratio, while elevated at 80.68% based on TTM earnings, is expected to stabilize at 67.65% by 2026 as earnings recover. This trajectory reflects PepsiCo's ability to balance generosity with prudence, ensuring sustainability even in challenging environments. Over the past decade, the company has grown its annual dividend at a compound annual growth rate (CAGR) of 7.77%, outpacing the sector average and demonstrating resilience in both expansionary and contractionary periods.

For long-term investors, this combination of yield and growth creates a powerful compounding effect. With the next expected dividend payment of $1.2650 per share scheduled for September 2025, the company continues to reward patience and loyalty—a critical factor in volatile markets.

Strategic Resilience: Navigating Challenges with Global Agility

PepsiCo's strategic initiatives in 2025 underscore its ability to adapt to shifting consumer preferences and macroeconomic pressures. While North American operations faced softness, with snack sales declining 1% and beverage volumes flat, the company leveraged its global footprint to offset domestic headwinds. The EMEA segment reported an 8% revenue increase, driven by localized innovations and pricing discipline, while India and Brazil saw organic growth in the International Beverages Franchise. This diversification mitigates regional risks and ensures consistent cash flow.

PepsiCo's pricing power and ESG-driven innovation further strengthen its long-term outlook. A 4% net price increase in North America and a 6% organic revenue growth in Q2 2025 internationally demonstrate the company's ability to balance affordability and profitability. Meanwhile, its pep+ sustainability framework—aimed at reducing emissions by 40% by 2030—aligns with global regulatory trends and attracts eco-conscious consumers. These initiatives are not just ethical commitments; they drive cost savings and brand loyalty, enhancing long-term value.

Financially, PepsiCo is well-positioned to execute its strategy. A debt-to-equity ratio of 0.4x and $7.19 billion in 2024 free cash flow support its $8.6 billion shareholder return program, including $1.0 billion in share buybacks. These actions bolster EPS growth and reinforce confidence in the company's ability to deliver returns even in a low-growth environment.

Investment Thesis: A High-Conviction Opportunity

PepsiCo's undervaluation, dividend strength, and strategic resilience collectively form a compelling case for long-term investors. While short-term challenges in North America persist, the company's global diversification, pricing agility, and ESG leadership position it to outperform in a volatile market. At a forward P/E of 16.8 and a 4.20% yield, the stock offers an attractive risk-reward profile, particularly for those seeking defensive growth.

For investors with a 5–10 year horizon, PepsiCo represents a rare combination of income generation and capital appreciation. Analysts' price targets and the company's history of compounding returns suggest that patience will be rewarded. In a world where uncertainty is the norm, PepsiCo's strategic depth and financial discipline make it a must-buy.