PepsiCo (PEP 1.08%) shareholders have a lot to celebrate here in early 2023. The beverage and snack-food giant recently closed out a fantastic fiscal year highlighted by soaring sales growth and a double-digit spike in earnings. Pepsi also raised its dividend for a 51st consecutive year.
Pepsi's outlook for the 2023 year isn't quite as bright. But the company still sees room to post solid sales growth while boosting profitability. Let's look at whether the dividend stock still looks attractive as an investment today.
Latest trends
Pepsi's 2022 was incredible from a growth perspective. Organic sales gains were a blazing 15% for the Q4 period and landed at 14.4% for the full year. That spike came on top of the 10% gain the company achieved in 2021 and is more than double the company's pre-pandemic growth rate.
Pepsi's sales trends reflect market share growth, pricing power, and an ability to avoid the type of supply-chain bottlenecks that hurt rivals such as McCormick (MKC 1.68%), which posted a 3% uptick for the 2022 year .
It wasn't all good news in this report, though. Pepsi reported lower sales volumes for the second straight quarter, meaning it had to rely entirely on price increases to deliver its higher organic sales. Pepsi's profit margin shrank slightly in 2022 as well, with core earnings rising 10% compared with the 14% increase in organic revenue .
Outlook and cash
Pepsi's 2023 outlook might be considered a disappointment to some investors. The company is calling for organic sales growth to slow to about 6%, compared with 14% last year and 10% in 2021. Pepsi isn't significantly boosting cash returns, either. Executives plan to spend $7.7 billion on dividends and stock buybacks this fiscal year, or about the same as in 2022.
On the positive side, the company is projecting a return to rising profit margins following a decline last year. Pepsi also announced a 10% increase in its dividend, marking a solid acceleration over the prior year's 7% boost. The company has now paid, and raised, its dividend in each of the last 51 consecutive years.
Price and value
Income investors will find a lot to like about a Pepsi investment today thanks to that expanding dividend. There are attractive growth qualities about this business, too, as the company wins market share in key niches such as energy drinks, snacks, and breakfast foods.
And the price is reasonable for the stock. Pepsi is valued at less than three times annual sales, representing a discount to McCormick, which is having more trouble posting strong growth. And Pepsi has a good shot at pushing its profit margins back above McCormick's over the coming years, thanks to the combination of growth, cost cuts, and market share gains.
It seems crazy that Pepsi's stock has underperformed the market over the past three years given those operating and financial wins. But that factor makes it more likely that prospective investors will see solid returns from here. Pepsi is winning in some key consumer-staples niches while paying a growing dividend. As a result, shareholders will probably be glad to have this stock in their portfolio.
