Is PepsiCo, Inc. (PEP) a Good Stock to Buy?

PepsiCo, Inc. (NYSE:PEP) has a long list of brands that appeal to consumers. The $125 billion company has taken measurable steps to diversify its product portfolio in recent years, proving that it is much more than just a soda company. To that end, the company’s revenue is evenly split between food and beverages. In total, Pepsi has 22 brands that each brings in at least $1 billion in annual sales.

PepsiCo, Inc. (NYSE:PEP)

The stock has rallied strongly in just the past few months, and as a result, begs the question: is the stock still a good buy?

Not the only soda giant in town

Of course, no discussion of PepsiCo, Inc. (NYSE:PEP) is complete without also mentioning its twin rival The Coca-Cola Company (NYSE:KO). The soda juggernaut, which counts Warren Buffett among its financial backers, is a corporate legend in its own right.

You can’t get much more in the way of slow-and-steady than with Coca-Cola and Pepsi. The Coca-Cola Company (NYSE:KO) raised its dividend in February this year, representing the 51st consecutive annual dividend increase for the company.

PepsiCo, Inc. (NYSE:PEP) soon followed suit, increasing its own payout in April for the 41st year in a row.

A smaller industry player is Dr Pepper Snapple Group Inc. (NYSE:DPS), which pays a slightly higher dividend than its rivals, at 3.25% annualized. The company also trades at a more attractive 15 times trailing earnings, which compares favorably to the P/E multiples on The Coca-Cola Company (NYSE:KO) and Pepsi, which both exceed 20 times. However, Dr Pepper Snapple Group Inc. (NYSE:DPS) does not have nearly as much brand strength as PepsiCo, Inc. (NYSE:PEP) or Coca-Cola, and cannot offer the relative safety of being among the biggest companies on Earth like its two rivals can.

Both The Coca-Cola Company (NYSE:KO) and Pepsi have enjoyed big share price rallies in a relatively short amount of time. At its recent prices, Pepsi has risen more than 20% just since the beginning of 2013. And, keep in mind that these returns don’t even include the generous dividend payouts Coca-Cola and Pepsi shareholders are accustomed to.

That being said, I prefer PepsiCo, Inc. (NYSE:PEP) to Coca-Cola for a fairly straightforward reason, which is the structural nature of their respective businesses. As I mentioned previously, there’s more to Pepsi than meets the eye. The company has broadened its product portfolio and has many brands that appeal to the consumer trend toward healthier eating habits.

The Coca-Cola Company (NYSE:KO), meanwhile, has stood still throughout its history. It’s a soda company, and all indications are it will remain a soda company for better or worse. To that end, consider that Coca-Cola’s sparkling beverage division, which includes such brands as Coca-Cola and Sprite, account for roughly 75% of the company’s sales.

The lesson here: You can’t always get what you want

Pepsi is a company that I admire for many reasons. It has a long and extremely successful operating history and treats its shareholders very well, through both meaningful share repurchases and a dependable, rising dividend.

Moreover, I think the company’s CEO, Indra Nooyi, has the vision and good sense to see what’s coming along the consumer landscape, which is a generational shift to healthier foods and drinks.

That being said, while I would love to count myself among PepsiCo, Inc. (NYSE:PEP)’s shareholders, at the present time I cannot commit to buy. Pepsi is one of those investing scenarios in which I must forcefully separate emotion from logic. I love Pepsi products and would also love to own its shares and receive an ever-increasing share of its business by reinvesting dividends. However, I can’t bring myself to pay 21 times trailing earnings and accept a yield lower than 3.5%. As a result, for the time being I will watch Pepsi from afar, hoping for a better buying opportunity down the road.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends The Coca-Cola Company (NYSE:KO) and PepsiCo. The Motley Fool owns shares of PepsiCo, Inc. (NYSE:PEP).

The article Is Pepsi a Good Stock to Buy? originally appeared on Fool.com.

Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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