Dividend Kings In Focus: PepsiCo


Revealed on February twenty fifth, 2022 by Bob Ciura

PepsiCo (PEP) not too long ago elevated its dividend by 7%. This implies 2022 would be the firm’s fiftieth consecutive yr of elevated dividends paid to shareholders.

Consequently, it has joined the listing of Dividend Kings.

The Dividend Kings are a gaggle of simply 40 shares which have elevated their dividends for at the least 50 years in a row. We imagine the Dividend Kings are among the many highest-quality dividend development shares to purchase and maintain for the long run.

With this in thoughts, we created a full listing of all 40 Dividend Kings. You may obtain the total listing, together with necessary monetary metrics reminiscent of dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:

 

PepsiCo is a recession-proof firm with a management place within the meals and beverage trade. It’s a dependable dividend development inventory that may improve its dividend, even throughout recessions.

On the similar time, the inventory has a market-beating 2.7% dividend yield. Whereas the inventory seems overvalued proper now, PepsiCo stays a high-quality holding for earnings buyers.

Enterprise Overview

PepsiCo is a serious client staples inventory. It has a big portfolio of high quality manufacturers, together with 23 particular person manufacturers that every generate $1 billion or extra in annual gross sales. Just some of its core manufacturers embrace Pepsi, Frito-Lay, Quaker, Gatorade, Bare, and lots of extra.

Supply: Investor Presentation

Its enterprise is sort of equally cut up between its meals and beverage segments. It’s also balanced geographically, between the U.S. and the remainder of the world.

PepsiCo introduced earnings outcomes for the fourth quarter and full yr 2021 on 2/10/2022. Income improved 12.4% to $25.3 billion, topping expectations by $1 billion. Adjusted earnings-per-share of $1.53 was a 4% improve from This autumn within the prior yr. For the total yr, income grew 12.9% to $79.5 billion whereas adjusted EPS of $6.26 was 13.4% larger than $5.52 in 2020.

Unit volumes for meals and snack elevated 4%. Beverage quantity elevated 7%. Income for PepsiCo Drinks North America improved 12% with a 7% improve in volumes. Frito-Lay North America’s income grew 7% and volumes have been up by 2%. Lastly, Quaker Meals North America income was flat with a 7% lower in volumes.

Together with offering quarterly outcomes, the corporate elevated its dividend by 7%. This implies 2022 might be PepsiCo’s fiftieth consecutive yr of dividend will increase.

The corporate owes its lengthy dividend historical past to its constant development through the years.

Progress Prospects

PepsiCo has a protracted historical past of regular development. Even in a difficult surroundings for soda, PepsiCo has continued its constant development. An illustration of the corporate’s efficiency from 2013 will be seen within the under picture.

Supply: Investor Presentation

We imagine PepsiCo will generate round 5%-6% adjusted earnings-per-share development per yr over the following 5 years. Going ahead, two of PepsiCo’s most promising catalysts are development in more healthy meals and drinks, and within the rising markets.

Gross sales of soda are slowing down in developed markets just like the U.S., the place soda consumption has steadily declined for over a decade.

Consequently, giant soda corporations like PepsiCo have needed to adapt to a extra health-conscious client. To do that, PepsiCo has shifted its portfolio towards more healthy meals which might be resonating extra strongly with altering client preferences.

As well as, PepsiCo has an enormous development alternative in rising markets like China, Africa, India, and Latin America. These are under-developed areas of the world, with giant client populations and excessive financial development charges.

Rising markets have been a development driver as soon as once more final quarter. Income for the Africa/Center East/South Asia was up 8% primarily as a consequence of quantity development and productiveness financial savings, however meals and snack volumes have been larger by 3.5% with drinks rising 12%.

The Asia Pacific/Australia/New Zealand/China area was PepsiCo’s additionally carried out effectively, rising 13% as a consequence of 16% features in meals and snack and seven% features in beverage.

Aggressive Benefits & Recession Efficiency

PepsiCo has quite a few aggressive benefits. Amongst them, are robust manufacturers, and world scale. In all, PepsiCo has 23 particular person manufacturers that every acquire at the least $1 billion in annual income. Sturdy manufacturers give PepsiCo optimum shelf house at retailers and provides the corporate pricing energy.

PepsiCo’s monetary energy additionally permits the corporate to spend money on analysis and improvement, in addition to promoting, to retain its aggressive benefits.

For instance, PepsiCo invests billions every year in analysis and improvement, to innovate new merchandise and packaging designs. As well as, PepsiCo usually spends greater than $2 billion every year on promoting, to keep up market share and construct model fairness with customers.

PepsiCo’s aggressive benefits and robust manufacturers permit the corporate to be extremely worthwhile, even throughout recessions. Meals and drinks all the time retain a sure degree of demand, which is why the corporate held up so effectively through the Nice Recession.

Associated: See detailed evaluation of the perfect beverage shares.

PepsiCo’s earnings-per-share all through the Nice Recession of 2007-2009 are listed under:

  • 2007 earnings-per-share of $3.34
  • 2008 earnings-per-share of $3.21 (3.9% decline)
  • 2009 earnings-per-share of $3.77 (17% improve)
  • 2010 earnings-per-share of $3.91 (3.7% improve)

As you may see, PepsiCo’s earnings-per-share declined solely modestly in 2008. The corporate proceeded to develop earnings by almost 20% in 2009, which may be very spectacular. Earnings continued to develop as soon as the recession ended.

The corporate reported robust development in 2020 and 2021, when the coronavirus pandemic despatched the U.S. economic system right into a recession. Subsequently, PepsiCo is a recession-resistant enterprise.

Valuation & Anticipated Returns

PepsiCo is anticipated to generate earnings-per-share of $6.67 for 2022. Primarily based on this, the inventory trades for a price-to-earnings ratio of 25.1. Our honest worth estimate is a price-to-earnings ratio of 21. Thus, the inventory seems overvalued. A declining price-to-earnings ratio might cut back annual returns by 3.5% every year over the following 5 years.

Consequently, future returns will doubtless be comprised of earnings-per-share development, and dividends. We count on PepsiCo to develop earnings-per-share every year by 5.5%, consisting of natural income development, acquisitions, modest margin growth, and share repurchases.

As well as, PepsiCo additionally has a 2.7% present dividend yield. Nonetheless, the overvaluation might be tough for the inventory to beat. The mixture of valuation adjustments, earnings development, and dividends leads to complete anticipated returns of 4.6% per yr over the following 5 years.

We at present charge PepsiCo inventory a maintain.

PepsiCo has a safe dividend, with a projected dividend payout ratio of ~69% for 2022. This offers PepsiCo sufficient room to proceed rising the dividend at charge in-line with the expansion charge of its adjusted EPS.

Ultimate Ideas

PepsiCo is a high-quality firm with a various portfolio of robust manufacturers. Its long-term development might be fueled by its snacks enterprise, and by advancing in creating markets.

The corporate has elevated its dividend for 50 years in a row, and the inventory at present yields 2.7%. It due to this fact meets our definition of a blue-chip inventory, and it ought to proceed to ship regular dividend will increase every year.

In case you are serious about discovering extra high-quality dividend development shares appropriate for long-term funding, the next Positive Dividend databases might be helpful:

The key home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month:

Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected]





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