Shares of PepsiCo, Inc. (NYSE:PEP) have rewarded investors nicely over the last few years, as PEP stock now floats around its all-time high of about $100.00 a share. PEP stock is even outperforming rival The Coca-Cola Co (NYSE:KO) stock. In the last five years, Pepsi stock is up about 55%, compared to 34% for KO stock.
Pepsi may not have the global brand recognition as its main rival, Coke, but it is still a quality business and may be worth a look. Here’s why.
Pepsi has diversified away from its soda-only roots, which has helped it to continue to grow its business as sugary drinks are falling out of fashion with consumers. Pepsi has several famous lines like Lay’s, Cheetos, Doritos, Ruffles, Quaker foods and snacks, and Aquafina. These products are part of a portfolio of 22 brands that brought in about $63.0 billion in sales in 2015. (Source: “PepsiCo Reports Fourth Quarter and Full-Year 2015 Results,” PepsiCo, Inc., February 11, 2016.)
This diversity has helped organic revenue grow five percent in 2015, which is an impressive growth rate for a company with a $142-billion market cap.
PEP stock is definitely worth a look for income investors. Pepsi is a dividend aristocrat, meaning it has increased its dividend payout every year for at least 25 years. Pepsi has paid a dividend every year since 1952 and has increased its payout to shareholders for the past 42 years. In the company’s latest earnings report, Pepsi announced it will be increasing its annual dividend by 7.1% a share for 2016, from $2.81 a share to $3.01 a share.
At its current price, Pepsi stock’s dividend yield is 2.86%, and with annual free cash flow of $8.1 billion, the company shouldn’t have a problem rewarding shareholders for years to come.
As big as Pepsi already is, the company is still growing. Although the North American market may be saturated, there is still plenty of growth to tap into in the emerging markets. In fact, growth in the emerging markets is coming in at approximately 11%, led by increasing snack sales. (Source: “PepsiCo Earnings Review: Snacks And Beverages Make A Good Marriage?” Trefis.com, July 10, 2015.)
The Bottom Line on PEP Stock
With its diverse brand portfolio, commitment to rewarding shareholders with increasing dividends every year, and opportunities for international growth, investors shouldn’t ignore Pepsi stock.