PepsiCo Dividend: A Sweet-Tasting Investment
Pepsico’s dividend is not flashy. It’s not grabbing the big headlines. You’re not going to confuse it with pop stars like Camila Cabello or Shawn Mendes walking down a red carpet, paparazzi cameras blinding.
But it is dependable, reliable and steady.
You can count on it for sustained and consistent excellence.
And that’s worth a heck of a lot in the world of dividend investing.
Is PepsiCo right for your stock portfolio? Perhaps.
But before we try to answer that question, let’s dive into what makes PepsiCo’s dividend so special.
All About PepsiCo
Ahhhh, Pepsi.Most likely when you think about PepsiCo, you think about its sugary-sweet cola beverage and its famed rivalry with Coca-Cola.
But there’s much more to the company than that. In fact, food and beverage company PepsiCo is broken up into six distinct business units:
- North American Beverage
- Frito-Lay North America
- Quaker Foods North America
- PepsiCo Latin America
- PepsiCo Europe Sub-Saharan Africa
- PepsiCo Asia, Middle East and North Africa.
The North American Beverage (NAB) group includes, of course, its flagship drink, Pepsi, but also other nonalcoholic beverage brands such as Tropicana, Mountain Dew and Gatorade.
The NAB group is the company’s biggest division by sales, with a $21.1 billion total revenue haul in 2018 – an increase of 1% from 2017.
Although NAB is the largest division by revenue, it’s not the leading profit center. Instead, Frito-Lay North America, with its lip-smacking salty brands like Doritos, Lay’s, and Fritos, has been a godsend for the firm.
In fact, operating profit in 2018 grew by 4%, contributing to a total of 9% growth over the last two years. The growth stems from both productivity savings, as well as revenue increases.
No thanks to me – I’m trying to cut my salty snack intake, to be honest.
Growth in the international markets divisions has also been strong. That’s thanks to a growing worldwide middle class eager to consume everything from a cold sugary glass of Pepsi to a hearty breakfast of Quaker Oatmeal.
PepsiCo Stock Today.
Over the last six months, PepsiCo’s stock has grown from $116.59 on March 11 to $136.36 as of closing on Wednesday, September 11. So it’s certainly not the least-expensive stock on the market.
On September 19, PepsiCo reached an all-time high of $139.18, helped by the overall strength of the market. Its current earnings per share are $9.03.
The stock currently has a market capitalization of about $193.1 billion and trades at an average volume of about 4.3 million shares.
In terms of valuation, the average price-to-earnings (PE) ratio of the market has historically been about 15. While the S&P currently sports a PE of about 22, Pepsi trades down at about 15 right now.
In fact, its pricing is right around fair market value. So a buyer wouldn’t be taking advantage of any glaring inefficiency in the stock price.
But we’re not looking at PepsiCo to take advantage of crazy growth or attractive capital gains.
We’re in it for the quarterly dividend. So let’s take a look at its historical dividend and where we are today.
PepsiCo’s Reliable Dividend
PepsiCo is a member of a distinct group of stocks: the Dividend Aristocrats.
As income expert Marc Lichtenfeld has reminded us, dividend-paying stocks have outperformed the general market for decades.
Currently, PepsiCo’s annualized dividend payout is $3.82 per share paid quarterly for a dividend yield of about 2.78%.
The dividend payout ratio of PepsiCo stock is currently 67.1%, which is an indicator that the cash dividends are sustainable.
On the other hand, if the dividend payout ratio was more than 100%, it would be a red flag on the prospects for future dividend growth.
Speaking of dividend growth, PepsiCo’s dividend has increased every single year – for 47 consecutive years!
There’s financial power in that kind of reliability. But does that steady dividend make PepsiCo stock a buy?
Why the PepsiCo Dividend Could Be a Great Buy
If you’re looking to add a reliable dividend-income producer to your portfolio, you may want to consider adding some Pepsi-Cola…
And some Mountain Dew, Lay’s potato chips and Quaker oatmeal while you’re at it.
Here’s Why PepsiCo Stock Might be a Great Buy:
PepsiCo knows that, as the old saying goes, you have to spend money to make money. And it is doing so on productivity improvements, cost-saving measures, as well as marketing efforts, all three areas with great potential to increase the bottom line. A company with a storied past that invests wisely in its future is generally a good bet.
- Product Diversity I’m no cola drinker, but that doesn’t mean PepsiCo doesn’t have a product for me and for lots of other non-soda drinkers. And with changing consumer tastes away from sugary drinks toward more health-focused beverages, PepsiCo’s product diversification is more important than ever. Also, with Coke taking a big bet on coffee last year, expect Pepsi to keep looking for modes of product diversification. For instance, PepsiCo’s recent acquisition of SodaStream and its forays into flavored sparkling-water drinks.
With current domestic events like the trade war with China and an inverted yield curve, a brand with a strong global presence is not a bad bet. And as more people around the world continue to grow into the middle class and increase their purchasing power, PepsiCo should have a steady stream of future buyers.
A Reliable Dividend
The 47 years of dividend growth is nothing to sneeze at. Based on the other fundamental indicators, there’s every reason to expect PepsiCo to continue increasing its dividend payout.
With all that being said, investing in the PepsiCo dividend could be a solid play in a turbulent, volatile world. If you’re looking to balance your portfolio with some reliable and stable dividends, PepsiCo may be just the stock you’re looking for.
After all, 47 years of dividend growth can taste pretty sweet indeed.
– Brian M. Reiser
Dividend income is a great form of passive income, but it is far from the only one. If you’re looking for other ways of boosting your income stream without having to work multiple jobs, check out my colleague Peter Bosworth’s terrific article called the Top 5 Passive Income Streams of 2019.
About Brian M. Reiser
Brian M. Reiser has a Bachelor of Science degree in Management with a concentration in finance from the School of Management at Binghamton University.
He also holds a B.A. in philosophy from Columbia University and an M.A. in philosophy from the University of South Florida.
His primary interests at Investment U include personal finance, debt, tech stocks and more.