Last update on 2024-06-28

PepsiCo (PEP) - Dividend Analysis (Final Score: 8/8)

PepsiCo (PEP) Dividend Analysis: A comprehensive study of PepsiCo's dividend stability, performance, and growth over 20 years, boasting a perfect score of 8/8.

Short Analysis - Dividend Score: 8

We're running PepsiCo (PEP) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

PepsiCo (PEP) has been evaluated based on an 8-criteria system for the performance and stability of its dividend policy. PepsiCo has a dividend yield of 2.9116% which surpasses the industry average. Its dividend growth rate has been strong over the past 20 years, averaging 11.08%. The payout ratio stays below the 65% threshold, with an average of 57.57%, indicating prudent financial management. Additionally, the company ensures dividends are well-covered by earnings. Although there were years when dividends weren't fully covered by cash flow, stability has improved. PepsiCo has also provided stable and increasing dividends since 2003 and paid dividends for over 25 years. The company has reliably repurchased shares for 18 of the past 21 years, confirming its strategy to return value to shareholders. Overall, PepsiCo scores highly with an 8/8 on the evaluation criteria.

Insights for Value Investors Seeking Stable Income

Based on this analysis, PepsiCo appears to be a strong and stable dividend-paying stock. Its continually higher-than-average dividend yield, substantial dividend growth rate, and prudent payout ratio make it an appealing option for dividend investors. The company's long history of consistently increasing dividends and share repurchases further enhances its profile as a reliable choice for long-term income-focused investment. It’s worth considering PepsiCo for any investor looking to add a dependable dividend stock to their portfolio.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

dividend yield of PepsiCo and why it is important to consider

PepsiCo (PEP) currently boasts a dividend yield of 2.9116%, which significantly exceeds the industry average of 0.97%. Over the past 20 years, PepsiCo's dividend yield has remained consistently above or much closer to the industry average. For instance, in 2009, it peaked at 3.6277%, significantly outperforming the industry average of 0.64%. This higher-than-average dividend yield underscores PepsiCo's strength in providing a reliable income stream to its investors. Consistently higher dividend yields are generally perceived as a sign of financial stability and operational efficiency, making PepsiCo an attractive option for income-focused investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate measures the annualized percentage rate at which a company increases its dividend payments to shareholders over time.

Between 2003 and 2023, PepsiCo's dividend growth rate varied annually. The average comes to 11.08%, substantially higher than the 5% benchmark, indicating a robust capacity for growing shareholder returns. Specific instances show double-digit increases in many years, far exceeding 5%, while only a few years exhibited rates below this mark. A high and consistent dividend growth rate can offer more sustainable long-term returns compared to lower growth rates and indicates that the company has healthy cash flow and profit margin capabilities to back such increases. Therefore, PepsiCo demonstrates a strong dividend growth profile, fostering investor confidence.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the percentage of earnings paid to shareholders in dividends. A ratio below 65% is generally considered sustainable as it indicates a company is retaining enough earnings to invest in growth while still rewarding shareholders.

PepsiCo's average payout ratio over the last 20 years is approximately 57.57%, which is below the 65% threshold. This is a positive trend, indicating that PepsiCo has maintained a conservative approach to dividend payouts while ensuring sufficient reinvestment into the business. The detailed annual data does show some variability, including peaks in 2015, 2017, and the 2020s, where the payout ratio exceeded 65%. However, these higher payout years are exceptions rather than the rule. Maintaining an average below 65% suggests cautious financial management and long-term sustainability in dividend payments, making PepsiCo an attractive choice for dividend investors.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings and why it is important to consider

Earnings per share (EPS) indicates a company's profitability and financial health. When EPS consistently exceeds dividends per share (DPS), it suggests that the company is generating sufficient profit to cover its dividend payments. This is crucial for investors who seek dividend stability and growth potential. A higher coverage ratio typically means that the dividends are sustainable and not under threat of being cut.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow measures whether a company generates enough free cash flow to cover its dividend payments. It is significant as it aids investors in gauging the dividend sustainability and the company's financial health.

Between 2003 and 2023, PepsiCo's dividend coverage ratio fluctuated from approximately 0.36 to 1.10. A coverage ratio above 1.0 indicates that the company has more than enough free cash flow to cover its dividend, which is considered very healthy. While PEP demonstrated steadily rising trends through most years, there were dips around 2017-2021 where dividend coverage went below 1.0. The current ratio of 0.84 indicates gradual improvement and suggests that dividends are generally well-covered, signaling stable managment and strategic focus on long-term financial health.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years means the company has consistently paid out dividends with no significant cuts, i.e., the dividends per share did not drop by more than 20% over the stated period. This reliability is crucial for income-seeking investors looking for a dependable income stream.

Analyzing the dividend per share over the past 20 years for PepsiCo (PEP), we observe a trend of continuous growth. The dividend per share has increased from $0.63 in 2003 to $4.945 in 2023, reflecting a consistent upward trajectory. Notably, there were no instances where the dividend dropped by 20% or more in any given year over this timeframe. This trend signifies strong and stable cash flow generation, indicative of PepsiCo's robust financial health and management's commitment to returning capital to shareholders. Such stability is a positive sign for long-term, income-seeking investors.

Dividends Paid for Over 25 Years?

Examining whether a company has paid dividends continuously for 25 years provides insight into its commitment to returning value to shareholders. It also suggests financial stability and reliability.

The data shows that PepsiCo (PEP) has consistently paid and increased its dividends over the past 25 years. Starting from $0.515 per share in 1998 to $4.945 per share in 2023, there is a clear upward trend demonstrating PepsiCo's strong dividend policy and financial health. This trend indicates a positive performance and a reliable return for dividend investors, aligning well with the company's reputation for financial stability.

Reliable Stock Repurchases Over the Past 20 Years?

PepsiCo's history of stock repurchases should be analyzed to determine whether the company provides reliable value return to shareholders through buybacks.

Over the past 20 years, PepsiCo has demonstrated a consistent pattern of share repurchases in 18 out of 21 years. This consistent repurchasing of shares can be seen as a reliable indicator of returning value to shareholders. For example, the number of shares decreased from 1,739 million in 2003 to 1,374 million in 2023. However, it's important to note an average repurchase trend of -1.1642% annually, indicating a reduction in outstanding shares. This trend is generally positive when the market perceives the company's shares as undervalued, leading to an increase in earnings per share (EPS) and often share price appreciation, posing a favorable outlook for long-term investors.