PepsiCo, Inc. Remains a Top Dividend Stock
Dividend stocks allow investors to worry less and benefit more thanks to regular returns. By that logic, PepsiCo, Inc. (NYSE:PEP) remains one of the safest investments; the company has been around since 1893 after all.
Indeed, PepsiCo stock has benefited from the company’s diversification and consolidation of its portfolio with popular brands. The company has prepared for changes in consumer preferences, offering healthier—or at least the perception of healthier—products. Of course, Pepsi Cola is but one of several PepsiCo brands, which also include Tropicana and Lipton.
PepsiCo has also accumulated various food products; it sells potato chips through Frito-Lay and cereal through Quaker. PepsiCo stock has shown consistent growth over the past five years, rising from about $68.00 in April 2011 to the current $103.81. In 2015 alone, PepsiCo enjoyed five percent higher revenues and 10% higher organic earnings. (Source: “PepsiCo Increases Dividend for the 44th Consecutive Year,” Dividend.com, February 12, 2016.)
PepsiCo reiterated the value of PEP stock when it recently increased the dividend seven percent with the June payment—the 44th consecutive yearly increase in a row. The new annualized dividend will yield 2.71% per annum, or $3.01 per share, based on the stock’s current price. (Source: Ibid.) Still, PepsiCo is not just about the dividend. As noted above, the company makes an overall compelling case for investment.
At the current price level, shares of PepsiCo are just under the stock’s record $105.08, which was reached on April 8. Yesterday, PepsiCo issued its first-quarter 2016 earnings report. The results were fully on target with expectations. That is only the partial story. In fact, the maker of the Tropicana and Lipton brands, which are driving the company’s diversification away from soda, recorded a net quarterly profit of $931 million, down 24% year-over-year. However, this number fully matched analysts’ predictions—leaving none of this finicky bunch disappointed. (Source: “PepsiCo Earnings Top Views on Lower Costs,” The Wall Street Journal, April 18, 2016.)
The fact that the decrease was largely the effect of a $373-million impairment charge for its investment in the Tingyi Asahi Beverages Group further managed to keep analysts’ fingers off the sell button. (Source: “PepsiCo quarterly sales fall 3%,” CNBC, April 18, 2016.)
Revenue actually increased by 3.5% on a constant exchange rate basis, said PepsiCo. Besides the excessive strength of the dollar, PepsiCo suffered from the deconsolidation of operations in Venezuela and the impairment of assets in Russia. PepsiCo, meanwhile, wants to save $5.0 billion by 2019 and has a cost reduction plan of $1.0 billion per year. (Source: Ibid.)
As PEP stock opened on Wall Street, shares gained 0.85% and touched $104.65, just under the stock’s record price. Like many American companies with major overseas operations, PepsiCo has suffered from the high value of the dollar. In fact, the results suggest that Americans’ appetite for chips and beverages is as strong as ever. U.S. sales helped offset the decline in demand in Europe and Latin America. Indeed, sales in North America of Frito-Lay potato chips and the ever popular Doritos—now 29% of sales—increased three percent to $ 3.42 billion.
PepsiCo has added new flavors of chips in order to move away from soda, which, as its competitors have also found out, is not moving off the shelf as briskly as a few years ago.
PepsiCo has expanded its portfolio to reduce its dependency on soda sales, suggests the group, noting that Pepsi’s soft drinks represent only 12% of its sales. (Source: “PepsiCo CEO: We’re reducing our reliance on colas for sales,” WRAL.com, April 18, 2016.) Still, thirsty investors should not lose hope.
Revenues generated by drinks in North America reached $4.36 billion in the first quarter ending March 19; that is up 1.5% year-over-year. (Source: The Wall Street Journal, op cit.) That is a surprising result, which suggests that PepsiCo has endured the American consumer trend away from carbonated beverages better than The Coca-Cola Co (NYSE:KO). (Source: “No loser in cola wars. Coke & Pepsi thriving,” CNN Money, April 12, 2016.)
Therefore, PepsiCo stock allows investors to enjoy the consistency of a dividend and regular growth. Investors can simply leave PepsiCo stock in autopilot mode. When the markets take unexplainable bearish headwinds, as they often do, PepsiCo weathers the storm without forcing shareholders to perform acrobatic maneuvers to protect their savings.