This is the kind of company that can be put into retirement accounts and held for long periods of time with dividend reinvestment.
The equity market has been very kind to PepsiCo since the beginning of this year. Like many blue chips, it has ridden a wave of enthusiasm by institutional investors looking to bid the equity market with the safest names.
PepsiCo offers safety as a corporation with an array of beverage products that are sold worldwide. The many brands that the company maintains are complemented by its snack business. The two businesses go hand-in-hand.
As a multinational company, currency translation plays a big role in its numbers. In the first quarter of 2013, organic revenue growth was a solid 4.4%, but after currency translation, this fell to a mere one percent.
The company’s Americas Foods division was the highlight, producing organic revenue growth of six percent (five percent after currency translation). PepsiCo experienced business growth in all its Americas Foods segments, which include Frito-Lay North America, Quaker Foods North America, and Latin America Foods.
PepsiCo’s first-quarter financial results beat consensus, and big investors celebrated the modest stability.
The equity market has generally been a consistent accumulator of shares in this company. Featured below is PepsiCo’s 25-year stock chart, adjusted for splits:
Chart courtesy of www.StockCharts.com
Consistent with its previous guidance for 2013, the company expects seven-percent growth in its core constant currency earnings per share this year. Combined with its dividend yield of nearly three percent, that’s a decent equity market prospect from such a mature and relatively safe corporation.
PepsiCo plans to spend $6.4 billion in dividends and share repurchases this year. With a forward price-to-earnings (P/E) ratio of around 17 and a trailing P/E of approximately 21, PepsiCo is fully priced.
This company is one of my long-term “super stocks”—great blue-chip companies that offer earnings growth, dividends, and capital preservation. (See “The Best Kind of Stock to Own for the Rest of This Decade.”)
I’m a big believer in dividend reinvestment for a long-term portfolio. While saving for retirement, you can increase your total returns significantly with automatic dividend reinvestment plans.
And once you’re retired, you can stay in the equity market if you choose and use those dividends for income.
If you bought PepsiCo in August of 2009, your simple return to date would be around 43%. With dividend reinvestment into new shares of the company, your return jumps to 60% (recognizing that 2009 was an exceptional base for the equity market).
There are plenty of super stocks out there to consider in a correction, and the soda, beverage, and snack market is a good one.
PepsiCo’s corporate outlooks and equity market returns are generally quite reliable.