PepsiCo, Inc. manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company is a dividend aristocrat which has increased distributions for 38 years in a row.
Over the past decade this dividend stock has delivered an annualized total return of 4.90% to its loyal shareholders.
The company has managed to deliver an average increase in EPS of 10.90% per year since 2000. Analysts expect PepsiCo to earn $4.12 per share in 2010 and $4.61 per share in 2011. This would be a nice increase from the $3.77/share the company earned in 2009.
The company has recognized that carbonated drink sales are not going to grow significantly in the future, which is why it has focused on fast growing non-carbonated soft drinks. The company’s innovation in the area has been successful with the introduction of Aquafina , Gatorade and Propel, Lipton teas and Tropicana. Pepsi has also started to emphasize on health and wellness, and has worked to minimize the amount of trans fats in its snack foods. Future earnings growth could also come from synergies associated with the acquisitions of its bottlers, streamlining of operations and cost cutting. The distribution networks of the bottlers acquired could be used to push some of PepsiCo’s non-beverage products such as snacks and other foods. Earnings growth could also come from strategic acquisitions, as well as product innovations in health and wellness food and beverage section. The company has recently announced its plans to acquire the leading Russian food and beverage company Wimm-Bill-Dann (WBD), in an effort to position itself in the growing emerging market in Russia and to build its nutrition business.
The company has a high return on equity, which has remained above 30%, with the exception of a brief decrease in 2004. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment in US dollars has increased by 13.70% per year since 2000. A 14% growth in distributions translates into the dividend payment doubling every five years. If we look at historical data, going as far back as 1978, we see that PepsiCo has actually managed to double its dividend every six and a half years on average.
Over the past decade the dividend payout ratio has remained above 50% only in 2008. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, PepsiCo is attractively valued at 16.50 times earnings, yields 2.90% and has a sustainable dividend payout. In comparison Coca Cola (KO) yields 2.70% and trades at a P/E of 20. I would continue monitoring PepsiCo and will consider adding to my position in the stock on dips.
Full Disclosure: Long PEP and KO
- Lowe’s Companies (LOW) Dividend Stock Analysis
- Why dividend investing beats US Treasuries today?
- Commerce Bancshares (CBSH) Dividend Stock Analysis
- Genuine Parts (GPC) Dividend Stock Analysis
Last week I shared with you a list of nine dividend champions , which I believed were attractively valued. Today I am sharing with you a few...
A common question I receive deals with the amount of money needed for retirement. This amount varies depending to personal situations. 1...
Last month, I discussed with you reasons to have your own unique investment strategy . I reached the following conclusion: If you follow ...
I invest in dividend growth stocks in order to generate a rising stream of dependable dividend income. Dividend income is more stable , and ...
I recently read the following announcement from Vanguard : " Vanguard Dividend Growth Fund (VDIGX) is closed to new investors as of J...
It is important to understand the simple math behind early retirement. Your savings rate, and asset returns will determine how long it takes...
This guest post was written by Joe Ferris, who is a long-time reader of the site. The author now manages money professionally and creates in...
The most common question or variation of a question I get concerns the amount of time to monitor my portfolio . This includes monitoring exi...
I invest in dividend growth stocks in order to generate a rising stream of dependable dividend income. Dividend income is more stable than c...
Every dollar that you have in your possession can be traced back to you exchanging your labor for money. The labor you provided was essentia...