Hi everyone 👋

I want to share a fresh addition to my portfolio – I’ve opened a position in PepsiCo $PEP. The main motivation is simple: I wanted to make my portfolio a bit more defensive. So far it’s been driven mainly by tech, and a piece of a stable business was simply missing.

The recent quarterly results helped, too – in my view, they weren’t as bad as the market reaction might suggest. Revenue of $24.2 billion beat estimates, US snacks returned to volume growth, and the international business is doing great. The weak spot remains North American beverages, where volumes fell 4%. It’s not a flawless quarter, but solid for a company the market has been writing off for the past two years.

What I like most is the combination of valuation and dividend. A P/E of around 18 is very modest by PepsiCo standards, and a dividend yield above 4% from a Dividend King with over 50 years of consecutive increases is something you don’t see every day. The same logic led me to recently open a position in McDonald’s $MCD – another defensive name, although there the valuation with a P/E around 22 and a yield of 2.7% is noticeably less generous.

Going forward, I’ll be watching two things with this position. First, the development in North America, their largest region – until beverages return to growth there, the overall recovery will only be half-hearted. And second, the payout ratio, which has gradually climbed to around 75% of earnings. That’s still quite high, but in my view still within a safe range – it will just need monitoring to ensure earnings growth keeps pace with the dividend.

And what about you – do you have PepsiCo in your portfolio, or hasn’t it convinced you yet? Would you be buying at these levels, or would you wait until the company shows it can return to growth at home?