"People will always need to eat and drink," goes an old stock market adage. For this reason, dividend-focused investors are often interested in stocks from the food and beverage sector, as their business model is considered a safe investment due to stable sales and cash flows. These cash flows are then used to distribute dividends. At least, that's the basic idea. However, many well-known food companies have significantly underperformed their benchmarks over the past five years. The reasons for this are manifold: disrupted supply chains, increased raw material costs, changing consumer behavior, the introduction of medications to regulate hunger, and much more.
A good example of the narrative of seemingly safe food stocks is the world's largest snack manufacturer and second-largest beverage company, PepsiCo (ISIN: US7134481081).
Source: Stock price
PepsiCo's stock price has risen by 180 percent over the past 20 years, while the S&P 500 index has gained 435 percent in the same period. Over the last five years, the gap has widened even further. While PepsiCo has risen by approximately 25 percent, the index has delivered a performance of around 80 percent. The stock is currently 16 percent below its all-time high. With over 50 annual dividend increases, PepsiCo has earned the status of a dividend king. However, the payout ratio has climbed to over 100 percent, raising the risk of a dividend cut.
Investors are uncertain and wondering why the stock performance isn't better. Is Pepsi facing the same challenges described in the introduction? What measures has management taken to create shareholder value again?
There are therefore plenty of reasons to take a closer look at this American stock in a PepsiCo stock analysis.
The company PepsiCo hardly needs an introduction to most investors, as its brands are well-known and can be found daily on the shelves of local retailers.
Nevertheless, a current look at the business of this American consumer giant is worthwhile.
PepsiCo, in its present form, has existed since 1965 when Pepsi Cola merged with the snack company Frito-Lays. The American company is almost equally involved in beverages and snacks. On the beverage side, brands such as Gatorade, Pepsi, Lipton Iced Tea, and SodaStream stand out as well-known and readily available in Germany.
Source: PepsiCo 2025 CAGNY Presentation
In Germany, Lay's and Doritos chips are well-known snack brands, while Walker's chips are particularly popular in the UK. PepsiCo also owns many other beverage and snack brands, including licensing rights for the distribution of Starbucks ready-made products. Furthermore, PepsiCo holds an 11 percent stake in energy drink manufacturer Celsius Holdings, which has acquired the licensing rights from PepsiCo to produce and sell Rockstar Energy in North America. PepsiCo can continue to distribute Rockstar internationally.
Source: StocksGuide AI
The Americans distribute their products worldwide and, unlike Coca-Cola, which outsourced its bottling business, retain control over their supply chains.
Furthermore, management has been active through acquisitions in recent years.
In 2020, Rockstar Energy was acquired for $3.85 billion, and just last year, the company relinquished its North American distribution rights to Celsius.
Also in 2025, Siete Family Foods, a Mexican snack company specializing in healthy snacks, was acquired for $1.2 billion. With this acquisition, as well as the takeover of Poppi Soda ($1.85 billion), a company specializing in prebiotic non-alcoholic beverages, the focus is shifting more towards healthier snack and beverage alternatives.
This is also necessary, as we will see in the following section.
PepsiCo's revenue is fundamentally divided between beverages and snacks. Snacks account for 58 percent of sales, while beverages make up 42 percent. Geographically, the ratio is similar: 56 percent of sales come from the USA, while the rest of the world accounts for 44 percent.
Source: 2024-PepsiCo-Annual-Report
The distribution looks considerably more interesting upon closer inspection (right side of the chart). Snacks in North America (Frito-Lay North America or FLNA) account for 27 percent of total revenue. However, this division contributes by far the largest share of operating profit (EBIT) at 39 percent. In contrast, the North American beverage division (PepsiCo Beverages North America or PBNA) contributes 30 percent to revenue, but only 19 percent to total operating profit.
This suggests that PepsiCo is significantly more dependent on the snack business than on beverage sales.
Ten years ago, in 2015, the dependence on snacks was even more pronounced. While the division contributed just 23 percent to revenue, it generated 46 percent of operating profit.
This means that PepsiCo has suffered a significant loss of profitability in the snack segment over the past 10 years. In 2015, snacks accounted for 53 percent of sales, while beverages made up 47 percent. The geographic distribution of revenue remained unchanged during this period.
During this time, PepsiCo made over 30 acquisitions to diversify geographically (for example, with the acquisition of the South African food and beverage company Pioneer Foods) and across its product portfolio.
This has not yielded the desired results, prompting management to implement new measures.
In December 2025, management presented a strategic plan outlining how the company intends to achieve higher revenue growth and how it plans to improve its profitability.
CEO Ramon Laguarta pledged improved margins for 2026 through cost savings and a cash flow conversion rate of at least 80 percent (free cash flow (FCF) as a percentage of net income). Management also announced a close collaboration with activist investor Elliott Management, a hedge fund that acquired a $4 billion stake in PepsiCo. The focus will be on reviewing supply chains and a potential spin-off of the bottling business.
If management implements all the announced changes, a recovery in profitability, and consequently in the share price, is likely.
Furthermore, Pepsi has divested part of its bottling business to independent companies and receives franchise fees in return. These revenues are already reflected in the current quarterly report.
In early February 2026, PepsiCo announced its quarterly results for the December quarter.
The stock price reacted positively, rising by 5 percent.
Source: PepsiCo
Revenue rose by 6 percent to $29.34 billion. However, product costs increased by a similar amount, so gross profit rose by only 5 percent. Administrative expenses increased by only 2 percent, allowing EBIT to rise by 17 percent to $4.08 billion.
Source: Financial data
Net income rose by a very high 67 percent compared to the same quarter of the previous year. Revenue reached $2.5 billion.
However, the reported sales figures from the quarterly report are not comparable to organic sales growth.
Quelle: Q4 2025 PepsiCo (8-K)
The 6 percent increase reported according to US Generally Accepted Accounting Principles (GAAP) is attributable to currency effects and divestitures (4 percent). Organic sales growth was only 2 percent. This growth resulted primarily from price increases rather than increased sales volume. Price increases have been the main driver of PepsiCo's sales growth in recent years, while volumes have been declining for years. Sales in the snack segment fell again, with a reported decrease of 2 percent. In the beverage segment, volume in North America declined by 4 percent; however, franchise fees resulting from the spin-off of certain bottling operations contributed to a volume increase.
The persistent decline in sales volumes over the years is a primary reason for PepsiCo's low revenue growth. Many consumers have become more price-conscious and have switched to cheaper alternatives.
To increase volumes again, management plans to introduce smaller package sizes and adjust prices accordingly. This is intended to appeal to health-conscious consumers.
Analysts predict single-digit revenue growth for PepsiCo in the coming years.
Source: Revenue Estimates
Revenue of $94.4 billion is expected for fiscal year 2026. This would represent an increase of approximately 3 percent. For subsequent years, the growth rate is projected to be between 3 and 4 percent.
Analysts have high expectations for earnings per share (EPS (TTM)) in 2026, with an average estimate of $8.19.
Source: EPS
The increase in EPS would be approximately 18 percent. For subsequent years, expectations anticipate only slight increases of between 4 and 6 percent per year.
Earnings per share are projected to fall below $12 by 2033. Despite the announced cost savings, analysts remain cautious in their forecasts.
For PepsiCo investors, dividend payments are a component of the overall return. For over 50 years, the company has not only distributed a portion of its annual profit to shareholders but has also managed to increase its dividend every single year during that period. This places PepsiCo among the elite group of so-called "dividend kings"—companies that have raised their dividends annually for 50 years or more.
Source: Dividend history
The long-term chart of dividend increases is impressive. Many companies don't achieve 10 or 25 annual increases, so this high number of increases generally speaks to the stability and security of the American company's business model.
Management has also announced a 4 percent dividend increase to $5.92 per share for this year.
Recently, PepsiCo stock was rated at 12 points according to the dividend strategy. The score has since dropped to 10 points. The breakdown of those 10 points is as follows.
Source: Dividend analysis
The stock receives 1 point for its current dividend yield of approximately 3.4 percent. A yield of 3.5 percent or higher would have earned it 2 points. The average dividend yield over the last 10 years is 3 percent, for which the stock receives the maximum score of 3 points.
The stock receives another point for its payout ratio, which averages 81 percent over the last 3 years. Recently, the ratio was below 75 percent, earning it 3 points and propelling the stock into the top scorer category.
Furthermore, 3 points are awarded for the consistent dividend payments over the last 10 years. Finally, the average dividend increase over the last 5 years earns another 2 points. The annualized dividend growth is an impressive 7 percent.
PepsiCo is very popular among dividend-focused investors and a component of many portfolios. However, the appearance of a seemingly safe dividend stock can be deceptive.
Therefore, we now turn to a critical assessment of the dividend within the overall context of the American food giant's capital allocation.
The dividend, which has increased for many years, was long supported by similarly increased cash flows. However, the trend over the past 10 years warrants critical examination.
Source: StocksGuide Charts
At the beginning of the millennium, free cash flow (FCF) was still growing in line with dividends.
However, around 2014, FCF reached a plateau, while dividends continued to increase annually.
Currently, FCF is not only below its 2014 level, but also below the dividend paid in the last 12 months.
The payout ratio, therefore, is over 100 percent of free cash flow.
This is not yet a cause for concern, but the outlook is no better for other metrics besides dividends and FCF.
Operating cash flow (OCF) is only a few percentage points above the figure from 10 years ago.
Source: StocksGuide Charts
For the past few years, around $5 billion has been invested. These capital expenditures were expected to translate into increased operating cash flow (OCF) in subsequent years, and this increased cash flow was intended to form the basis for further increases in dividend payouts.
However, this has not been the case. Instead, as a result of numerous acquisitions (remember: 30 acquisitions in the last 10 years), net debt has increased significantly and currently stands at approximately $40 billion.
Debt was increased by another $8 billion in the last quarter.
Currently, net debt to free cash flow (FCF) has a multiplier of 5. This is an elevated value for a capital-intensive company like PepsiCo. A maximum value of 4 would be preferable.
The question investors should be asking is: Why is PepsiCo showing so little cash flow growth despite regular investments? One reason is the overpriced acquisitions of recent years.
Why overpriced?
In 2025, Pepsi recorded an impairment charge of approximately $2 billion on its acquisition of Rockstar. The acquisition price in 2020 was $3.85 billion, meaning the impairment charge represents over 50 percent of the purchase price. Similarly, $862 million was written down on the acquisition of SodaStream. The price for the water dispenser provider was $3.2 billion in 2018. The written-down amount thus represents 25 percent of the purchase price. In total, management has written down approximately $4.5 billion over the past five years for past acquisitions and the exit from its Russian business following the outbreak of the Ukraine conflict.
While these impairment charges do not represent direct cash outflows, the acquisitions resulted in a disproportionately high outflow of capital relative to the value of the companies. Management could have used this capital, among other things, to pay dividends and thereby keep the payout ratio at a lower level.
CEO Ramon Laguarta has been in office since 2018 and has been responsible for all acquisitions since then. With Elliott Management's investment, Laguarta will have to scrutinize further acquisitions more closely to avoid jeopardizing his position.
The valuation of PepsiCo stock has currently reached a comparatively fair level.
Source: Key metrics
The price-to-earnings ratio (P/E ratio) is currently 27 (based on the last 12 months); based on the expected annual earnings in 2026, it is 19. Considering the low growth but the supposedly secure business model, the valuation appears roughly fair. The enterprise value/sales (EV/sales) ratio of 2.8 is still slightly below the 10-year average of 3.
As a risk, we should not forget the increased debt of the American company and the possibility of further balance sheet risks in the form of additional unscheduled write-downs.
Source: StocksGuide AI
Management must also demonstrate its ability to adapt to changing consumer lifestyles more quickly than it has in recent years.
Our analysis shows that even seemingly stable business models like snacks and beverages face challenges.
At PepsiCo, years of mismanagement have taken their toll on stagnant cash flows. Following the investment by hedge fund Elliott Management, Ramon Laguarta must deliver improved results quickly, or the activist investor could demand the CEO's removal.
The newly established franchise business offers initial positive signs and is a boost for the embattled CEO.
Source: Target price
While 55 percent of analysts recommend holding the stock, the most recent ratings have been buys. 41 percent of experts consider the stock a buy.
If management can significantly increase sales volume, revenue, and cash flow, the current valuation would be low. However, a degree of caution seems advisable, which is why the stock might be more suitable for a watchlist. An EV/Sales alert of 2 or below could present an attractive entry point.
The author and/or persons or companies associated with StocksGuide own or may own shares of PepsiCo. This article represents an expression of opinion and does not constitute investment advice. Please note the legal information.