Dividend Growth Stock Of The Week: PepsiCo

Last week PepsiCo (PEP) increased its dividend by 7%.

If you’ve been following the company, this increase was announced back in February but didn’t become official until the June dividend was declared.

This brings its dividend growth streak to a huge milestone – 50 years.

Whether you are a Pepsi or a Coca-Cola drinker, chances are pretty good that you regularly consume some of PepsiCo’s products. You see, aside from its namesake soda, PepsiCo also produces a wide variety of beverages and snack foods. Some of its top brands include Pepsi, Mountain Dew, Gatorade, Lipton, Aquafina, Sodastream, Lays, Doritos, Tostitos, and Quaker Oats.

The roots of Pepsi date back to 1898 when a pharmacist created Pepsi Cola for his customers. However, the modern-day company was formed in 1965, when Pepsi-Cola merged with Frito-Lay to create a consumer powerhouse offering a complementary portfolio of salty snacks and refreshing beverages. The company later expanded its food offerings by merging with Quaker Oats in 2001.

Today, PepsiCo pulls in over $79B in sales each year, with more than 20 brands that generate over a billion dollars in revenue. Its products are sold in over 200 countries, but the majority of sales (over 60%) come from North America. Believe it or not, PepsiCo actually gets slightly more money from selling snack foods (55% of revenues) than it does from selling beverages.

Over the last decade, PepsiCo has increased its dividend at an average of 7.7% per year. That means that this year’s 7% increase is in line with its historical growth rate.

PepsiCo shares now pay $1.15 in quarterly dividends, which translates to a yield of just under 2.7%. The payout ratio of 69% is somewhat high. However, given the company’s history of excellent financial management, this is not overly concerning. PepsiCo holds an enviable A+ credit rating.

PepsiCo has historically had a share repurchase program, but the company has not bought back shares in recent years. Over the past decade, shares outstanding have been reduced by 10.5%.

In 2021, PepsiCo reported one of its best years of growth in recent history, increasing earnings per share by 13% thanks to the reopening of the economy. This year, analysts are forecasting a more moderate 6% growth due to the conflict in Ukraine and inflationary pressures. But, due to the company’s strong brand power, it is able to pass on price increases to consumers. Looking forward, analysts expect the company to grow at high single-digit rates in the next few years.

So is it worth picking up a few shares of PepsiCo now? The stock trades at over 25 forward earnings. That’s a bit pricey compared to its historical range of 20-23 times earnings. Shares prices have held up during the recent market turmoil due to the perception of the company as a safe haven. It might be better to wait for the price to pull back a bit, but it’s worth keeping an eye out for a chance to add this high-quality dividend growth company to your portfolio.

Brad Thomas is the Editor of the Forbes Real Estate Investor.

Disclaimer: This article is intended to provide information to interested parties. ...

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