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PepsiCo: Strong Brand Portfolio Pays Dividends

PepsiCo: Strong Brand Portfolio Pays Dividends
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By Monday, 29 June 2020 07:23 PM Current | Bio | Archive

PepsiCo (PEP) has a highly impressive history of paying dividends, and it is all because of the company’s strong brand portfolio. PepsiCo has increased its dividend for 48 consecutive years. This places it on the exclusive list of Dividend Aristocrats, and it is now two years away from joining the Dividend Kings.

The company’s long streak of dividend increases is due to its diversified and category-leading portfolio of food and beverage brands. PepsiCo has made many acquisitions over the years to build a large base of brands, many of which generate over $1 billion in annual sales.

With a dividend yield above 3% and a high likelihood of continued dividend increases for many years, PepsiCo can be an excellent long-term holding for dividend growth investors.

Business Overview

PepsiCo traces its history all the way back to 1898. Today, it is a global food and beverage giant with annual revenue of approximately $70 billion. Its growth throughout the many decades of its existence was thanks to its strong product portfolio. The company’s major brands include soft drinks like Pepsi and Mountain Dew, as well as non-sparkling beverages such as Gatorade and Tropicana. In addition to its beverages, PepsiCo has a large portfolio of food brands such as Frito-Lay and Quaker.

These brands continue to show their dominance, even in a difficult environment. Despite the coronavirus crisis, PepsiCo has generated growth to begin 2020. PepsiCo reported 10% adjusted earnings-per-share growth in the first quarter. Revenue increased 7.7% to $13.9 billion. Both figures exceeded analyst expectations. Organic growth (which refers to sales excluding the impact of foreign exchange fluctuations and divestitures) came to 7.9% for the period, as the company benefited from consumers stockpiling their pantries during the nationwide lockdowns.

Every business segment and region had at least mid-single-digit organic growth. Food and snacks had 5.5% organic volume growth while beverages grew by 6%. PepsiCo is likely to continue growing in the years ahead, meaning its dividend growth should follow suit.

Growth and Dividends in One Stock

We expect PepsiCo to continue generating steady growth for many years. Thanks to a strong brand portfolio, the company has the ability to raise prices over time. It can also generate growth in new geographic regions, such as the emerging markets. For example, last quarter the company’s Asia Pacific, Australia, New Zealand and China segment grew organic sales by 7%. Latin America reported 8% growth, while the Africa, Middle East, and South Asia segment generated 14% growth.

Lastly, PepsiCo’s share repurchase program will boost future earnings-per-share growth. The company continues to expect $2 billion in share repurchases for 2020. In all, we expect the company to generate roughly 5%-6% annual growth in adjusted earnings-per-share over the next five years.

Earnings growth will support dividend growth, as it has for so many years. PepsiCo recently increased its quarterly dividend by 7%. In a recessionary environment when so many stocks are reducing or suspending their dividend payouts, it is even more impressive that PepsiCo has maintained its dividend growth and share buybacks this year.

PepsiCo is not a deeply undervalued stock, with a 2020 price-to-earnings ratio well above 20. But the stock has consistently maintained a higher valuation multiple, and it could easily be argued that the stock deserves a premium valuation due to the high quality of the business. PepsiCo stock is an attractive mix of growth and income, making it a potential long-term holding for dividend growth investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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PepsiCo (PEP) has a highly impressive history of paying dividends, and it is all because of the company's strong brand portfolio.
pepsico, brand, portfolio, dividends
Monday, 29 June 2020 07:23 PM
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