PepsiCo Dividend: Why This Dividend Aristocrat Is Built For A Recession

PepsiCo (PEP) has been one of the best-performing dividend growth stocks over the past several decades.

PepsiCo has increased its dividend for 47 consecutive years. As a result, it is a member of the Dividend Aristocrats, a group of 57 stocks in the S&P 500 Index with 25+ consecutive annual dividend increases. PepsiCo stock also has a current yield of nearly 3%, which is significantly higher than the ~2% current yield of the broader S&P 500 Index.

Because of its long history of steady dividend increases, we view PepsiCo as a blue-chip stock.

PepsiCo is not the highest-yielding stock around, but on the other hand it offers investors a great deal of stability. PepsiCo has a long history of paying and raising its dividend each year, even during recessions. It has a strong business model and a large collection of some of the world’s most valuable brands.

Therefore, the company can be expected to continue paying its dividend each year for the foreseeable future, even if the U.S. enters a recession.

Business Overview & Recent Earnings

PepsiCo is a global food and beverage company that generates $67 billion in annual sales. The company’s major brands include Pepsi, Mountain Dew, Frito-Lay, Gatorade, Tropicana, Quaker, and many more. While known for its carbonated beverages, Pepsi’s food and snacks make up approximately 52% of sales. PepsiCo has a current market capitalization of $192 billion.

PepsiCo has generated strong and steady growth since 2012.

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Source: 2019 CAGNY Presentation

PepsiCo has continued to perform well in 2019, even with persistent concerns over a slowdown in the global economy and the challenge of trade conflicts. PepsiCo reported earnings results for the third quarter on 10/3/2019. The company earned $1.56 per share, $0.05 above consensus estimates, but a 2% drop from the previous year. Revenue increased 4.2% year-over-year to $17.2 billion. This was $260 million more than expected. Foreign exchange reduced both revenue and earnings-per-share by 1%. PepsiCo produced organic growth of 4.3% during the quarter, giving the company a year-to-date organic growth of 4.6%. This is well ahead of the 3.4% organic growth that PepsiCo saw through the first three quarters of 2018.

PepsiCo Beverages North America produced 3% organic growth due to higher prices and increased advertisement. PepsiCo has increased its advertising and marketing by 12% so far this year, leading to solid returns among its different product categories. The company’s trademark Pepsi brand posted its fifth quarter in a row of net revenue growth. Frito-Lay North America grew organic revenue 5.5%. Higher volumes and prices were the main drivers for this division. Quaker Foods improved 1% due to light snacks and Aunt Jemima syrup and mix.

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