PepsiCo (PEP 1.02%) has an appetizing array of products for consumers and investors alike. The company's namesake cola heads up an attractive line of beverages, while the Frito-Lay unit focuses on the chips and other snacks that often accompany a can of Pepsi. For decades, PepsiCo has rewarded its investors with strong dividends, and most investors are pretty confident that the company will keep doing so indefinitely into the future. Yet some wonder whether those beliefs are justified or are simply wishful thinking, especially as the cola industry comes under scrutiny from health advocates. Below, you'll learn more about whether PepsiCo's dividend is truly safe.
Dividend stats on PepsiCo
|
Current Quarterly Dividend Per Share |
$0.805 |
|
Current Yield |
2.8% |
|
Number of Consecutive Years With Dividend Increases |
45 years |
|
Payout Ratio |
65% |
|
Last Increase |
May 2017 |
Data source: Yahoo! Finance. Last increase refers to ex-dividend date.
Dividend yield
PepsiCo's dividend yield of 2.7% is quite attractive, exceeding the overall market's average of around 2%. Yet the yield isn't so large that it raises alarm bells for being unsustainable. Over the past decade, PepsiCo has done a good job of keeping its dividend yield relatively stable, with a range between roughly 2.5% and 3.5% holding up throughout most of the period. Dividend growth has tracked share price gains quite closely in recent years, and that's been enough to keep the yield from being particularly volatile.
Payout ratio
PepsiCo has a solid payout ratio as well, holding in the mid-60%s recently. That's somewhat higher than the roughly 50% figure that prevailed throughout much of the early 2010s, but it's down from its peak of nearly 80% within the past year. PepsiCo's earnings took a temporary hit in 2015 and 2016, and the company's decision not to allow it to affect the dividend led to some fluctuations in the metric. For a mature company, the current figure is safe and gives PepsiCo the ability to consider strategic moves with its spare capital while still treating its shareholders well.
Image source: PepsiCo.
Dividend growth
PepsiCo has put together an enviable track record of dividend growth featuring annual payout increases for 45 straight years. Throughout much of the 1990s and early 2000s, PepsiCo was slow in raising its dividends, but the pace of growth accelerated dramatically in the mid-2000s and sustained itself even through the financial crisis. The roughly 7% boost that PepsiCo made earlier this year is consistent with longer-term trends, and it should reassure dividend investors that the snack and beverage giant is serious about returning capital to shareholders.
PEP Dividend data by YCharts.
Where is PepsiCo headed?
PepsiCo has done well in responding to a market in which soda consumption has fallen to levels not seen in more than three decades. Consumers have become increasingly conscious of the health impacts of their food and beverage choices and, fortunately, PepsiCo has kept itself on the cutting edge of health-conscious trends by offering alternatives to its namesake product. New launches like LIFEWTR enhanced water have done well so far, and PepsiCo will increasingly count on items like these to offset soda declines and seek to generate overall growth.
The same is true with the company's snack lines. CEO Indra Nooyi prides herself on offering guild-free options to consumers, including carefully controlled package sizes that avoid major impacts from added sodium and saturated fat. Investors understand that a full transition toward healthier snacks and beverages will take many years, and short-term quarterly results won't always look pretty during the switch. PepsiCo remains confident that it's on the right track, and its history of growth supports its positive opinion on the matter.
Why PepsiCo's dividend is secure
PepsiCo won't let its impressive record of dividend growth become vulnerable, and that makes the payout safe for the foreseeable future. Only if a completely unpredictable major adverse event occurs would PepsiCo be faced with a tough decision on its dividend, and even then, investors can expect that the beverage and snack giant would do everything it could to balance competing considerations and find a way to sustain its payout.
