The numbers are piling in, and there have been some disappointments as usual. This is why individual stock selection always matters in a portfolio, and equity investors should be willing to make changes depending on what stage of the business cycle a company is experiencing.
One company that’s proven itself to be a good business to own is PepsiCo, Inc. (PEP). It’s a brand-name mature enterprise with an excellent track record of long-term, reliable wealth creation for stockholders. It’s not the fastest growing large-cap in the marketplace, but the snacks and beverage business is consistent and so are the dividends.
Wall Street and institutional investors would love to see PepsiCo spin off its food and snacks business from beverages, similar to what recently transpired with Kraft Foods Incorporated.
A spin-off would, no doubt, be a boon to shareholders, but I don’t see it happening, because the company’s management needs the profits from Quaker foods (oatmeal) and especially “Frito-Lay” (potato chips) to help with the slow-growth world of soda and juice.
PepsiCo’s organic global snacks sales grew five percent comparatively in the second quarter of 2014 and two percent for global beverages.
Currency translation was unfavorable during the most recent quarter, bringing the growth rates down to two percent for global snacks and a decline of one percent for global beverages.
But despite the slow growth, the company’s operating margin improved a solid 10% during the second quarter, and that’s the big story that got the shares moving on the earnings report.
PepsiCo’s two-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
The company also boosted its full-year 2014 earnings-per-share growth outlook to eight percent comparatively, up from seven percent previously.
Management is planning approximately $5.0 billion in share repurchases this calendar year and some $3.7 billion in dividends paid.
PepsiCo has increased its annual dividend for 42 consecutive years and recently declared a quarterly dividend of $0.655 per share, up 15% over the same period last year, which is material.
Combined share repurchases of $8.7 billion this calendar year represents a 35% increase over 2013, and it’s why big investors keep investing in this mature enterprise. (See “How to Create a Winning Portfolio in a Market at Its Highs.”)
On share price weakness or a correction, I think PepsiCo’s shares make for a welcome addition to any quality long-term stock market portfolio. And the company is also a good candidate for dividend reinvestment if stockholders do not require the quarterly dividend income.
While all equities are speculative securities, PepsiCo stock isn’t for risk-capital traders. This is a long-haul position in a retirement portfolio or a modest income-paying stock while in retirement.
The company’s bottom-line earnings beat Wall Street consensus, and that’s all the marketplace needed to bid the shares.
A lot of stocks have been selling off on good financial results and it’s so reasonable, because prices have gone up tremendously in advance of corporate reporting.
Nobody expects PepsiCo to produce highflying growth, of course, but once again, the company delivered and the Street was happy.
With an aggressive dividend and share repurchase program, this company should continue to be a solid wealth creator for investors.