Assessing the Dividend Sustainability and Growth Prospects of PepsiCo Inc
PepsiCo Inc(PEP, Financial) recently announced a dividend of $1.27 per share, payable on 2023-09-29, with the ex-dividend date set for 2023-08-31. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's deep dive into PepsiCo Inc's dividend performance and assess its sustainability.
Understanding PepsiCo Inc's Market Position
PepsiCo is a global leader in snacks and beverages, owning well-known household brands including Pepsi, Mountain Dew, Gatorade, Lay's, Cheetos, and Doritos, among others. The company dominates the global savory snacks market and also ranks as the second-largest beverage provider in the world (behind Coca-Cola) with diversified exposure to carbonated soft drinks, or CSD, as well as water, sports, and energy offerings. Convenience foods account for 55% of its total revenue, with beverages making up the rest. Pepsi owns the bulk of its manufacturing and distribution capacity in the United States and overseas. International markets make up 40% of total sales and one third of operating profits.
Tracing PepsiCo Inc's Dividend History
PepsiCo Inc's dividend history showcases a firm commitment to rewarding shareholders. The company's Dividends Per Share has seen consistent increments over the years, indicating a solid dividend distribution approach. PepsiCo Inc has increased its dividend each year since 1973. The Stock is thus listed as a dividend king, an honor that is given to companies that have increased their dividend each year for at least the past 50 years.
Dissecting PepsiCo Inc's Dividend Yield and Growth
Dividend growth rates, both on a 3-year and 5-year basis, further shed light on the company's proclivity to increase shareholder returns. The 3-year dividend growth rate and the 5-year dividend growth rate both reveal a pattern of consistent and robust growth.
PepsiCo Inc's dividend has changed by 6.10% per year on average over the past three years, which underperforms approximately 57.14% of global competitors. During the past five years, the company's dividend has increased by approximately 6.90% per year on average.
Based on PepsiCo Inc's dividend yield and five-year growth rate, the 5-year yield on cost of PepsiCo Inc stock as of today is approximately 3.69% per year.
Evaluating Dividend Sustainability: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-06-30, PepsiCo Inc's dividend payout ratio is 0.83. This may suggest that the company's dividend may not be sustainable.
PepsiCo Inc's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks PepsiCo Inc's profitability 9 out of 10 as of 2023-06-30, suggesting good profitability prospects. The company has reported positive net income for each of year over the past decade, further solidifying its high profitability.
Additionally, the predictability rank of 2 stars out of 5 suggests that revenue and earnings growth of PepsiCo Inc is not consistent.
Scrutinizing Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. PepsiCo Inc's growth rank of 9 out of 10 suggests that the company's growth trajectory is good relative to its competitors.
Revenue is the lifeblood of any company, and PepsiCo Inc's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. PepsiCo Inc's revenue has increased by approximately 9.30% per year on average, a rate that outperforms than approximately 68.42% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, PepsiCo Inc's earnings increased by approximately 7.30% per year on average, a rate that outperforms than approximately 51.69% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of 5.20%, outperforms than approximately 47.69% of global competitors.
Conclusion
In conclusion, while PepsiCo Inc's dividend yield and growth rate are commendable, its payout ratio raises questions about the sustainability of its dividend. However, the company's strong profitability and impressive growth metrics suggest that it has the potential to continue rewarding its shareholders in the long run. Investors should keep a close eye on these factors while making their investment decisions.
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