PEP is a good entry point; valuation is at historic lows and dividend is safe despite slowing growth.

The second stock on my 52-week low list is PepsiCo, whose ticker symbol is PEP. It is a dividend king, meaning it has been consistently increasing its annual dividend for more than 50 years.

They have a portfolio of many great top brands and are currently trading at historic discounts. The stock has fallen 15% in the last 5 years and 8.4% in the last year. It is currently near its 52-week low.

I recently made a full video on PepsiCo stock , where I mentioned that this is the highest dividend yield for this stock in the last 42 years. You heard that right, 42 years. The last time yields were this high was in 1984 , and I'll go into that in depth.

So, here you see their long history of dividend growth. This is a quarterly dividend paying company. In the last 10 years, dividends have increased by 96%. This is a 7% compound annual growth rate.

However, similar to McDonald's, although not as severe as McDonald's, the pace of dividend growth is slowing. In the last 3 years, it has grown by 17%. This is a compound annual growth rate of 5.37%.

The latest dividend growth rate is 4.04%. The previous one was 4.98 %. However, this is a slowdown because the previous one was 7.11 %.

The stock is currently trading at 4. 55% forward-looking dividend yield, which is the highest in the last 5 years , i.e. the 100th percentile. And as I mentioned, this is the highest in 42 years of history.

Our chart only shows up to 2007, but you can see it's at its highest point yet. At that time, its median was 2.89%. So, this is a major exception to the upward trend. You haven't had the opportunity to buy PepsiCo stock at such a dividend yield in a long time.

However, there are some concerns about the company. Growth is slowing, which we will discuss, but dividends also no longer seem sustainable. For the first time in 2019, their free cash flow payout ratio was 97%.

It was 110% in 2022, 100% in 2024, and 99.6% in 2025. This has led many to wonder if PepsiCo's dividend could be at risk.

However, I specifically added this so that you can see the free cash flow payout ratio for the last 12 months , and their free cash flow has improved over the past year. Recent quarters have seen improvements and they are currently on track for an 84.6% free cash flow payout ratio.

And on a forward-looking basis, calculating dividend growth, it is 87.1%. So, the situation is improving and personally I don't think there is any risk of them cutting their dividend.

If we look at their earnings payout ratio, which is based on GAAP earnings per share, it was 92.7% last year. It was once again raising alarm bells in people's minds , but due to improved performance it is now 75.3% over the last 12 months.

Now, on a forward-looking basis, calculating dividend growth, it is 77.6%.

I recently added this feature in preparation for this video because I realized that these annual payout ratios might seem outdated as new quarterly data comes in. It is useful to have data from the past 12 months and forward-looking projections.

PepsiCo is a reliable wealth-building company in the stock market. $8.36 in the last 12 months. This is their adjusted earnings per share, and you can see it has grown consistently over the decades.

Over the past 10 years, adjusted earnings per share have increased by 77%. This is a 6% compound annual growth rate (CAGR). However, it is 11% in the last 3 years. It is slowing down. This is a CAGR of 3.98%.

And right now , analysts expect low-single-digit growth in earnings per share in the coming years. But the truth is, PepsiCo's share price is falling. Based on trailing 12- month earnings per share , its P ratio is 17.06.

This is the lowest in the last 5 years. Its median multiple was 25.84, because it is a very reliable company.

If we look at the forward-looking P ratio, it is currently 15.22. This is the lowest in the last 10 years. You can see that its median was 22. This is the seventh lowest percentile since 2007.

It was only this low from 2008 to 2011 , which was historically considered the best time to buy PepsiCo shares.

currently 15.22. This is the lowest in the last 10 years. You can see that its median was 22. This is the seventh lowest percentile since 2007. It was only this low from 2008 to 2011, which was historically considered the best time to buy PepsiCo shares.

Similar to the McDonald's example, it is trading at a discount to historical multiples , especially over the past 5 years, 10 years, and the entire period. The forward- looking P/E ratio is currently 15.22.

Since 2007, its median has been 20.89. If the stock starts trading at a multiple of 20.8, its potential share price will be 178. It is 37.3% higher than here. So, you can think of this as your safety margin for investing in PepsiCo shares.

The forward-looking P/E ratio is currently 15.22. Since 2007, its median has been 20.89. If the stock starts trading at a multiple of 20.8, its potential share price will be 178.

It is 37.3% higher than here. So, you can think of this as your safety margin for investing in PepsiCo shares.

Especially compared to its historical dividend yield, this is a good entry point. If it eventually returns to a 2.89% yield, that's 57.4% more than the current price.

However, PepsiCo's growth is expected to slow. So, if you want market-beating returns, even with dividends reinvested, you will need an upward re- rating. It is in a better position at a multiple of 20.5.

If it is traded in multiples of 25, that is even better.

So, looking at PepsiCo shares, I think it's the best time to buy in the last decade, certainly in the last 5 years, but the question remains, who is it suitable for?

Like McDonald's, I think it's a good fit for dividend investors nearing retirement who want reliable income and dividend growth, and who want to get a yield higher than the S&P 500, but are skeptical about whether the total return will outperform the overall market.