PepsiCo (PEP -0.62%) investors are in for a treat. The company is set to announce its Q4 financial results in early February, likely closing out a strong year for revenue and earnings growth. Most Wall Street pros are looking for organic sales to post a double-digit gain for the period, in fact.
That announcement will include details on Pepsi's dividend hike for 2024, which could be significant. Let's take a closer look at just how big of an increase could be on tap for income investors this year.
Funding with growth
PepsiCo is heading into the fiscal 2024 year with solid growth momentum. Revenue should rise by 10% in fiscal 2023, management said in mid-October, on top of the snack and beverage giant's 14% organic sales spike in 2022.
Along with slightly slower growth, this year's sales trends relied much more on rising profits as well. Volumes were down through the first three quarters of the year as shoppers reacted to higher prices by scaling back on their purchases somewhat.
As a result, Pepsi executives might be a bit less optimistic about the chances for faster sales gains ahead in 2024, adding caution to the dividend outlook.
Earnings and cash flow
On the bright side, earnings and cash flow are jumping thanks to the combination of cost cuts, price increases, and a demand tilt toward sparkling waters and energy drinks, which carry higher profit margins. Pepsi's operating profit margin expanded in the most recent quarter and per share earnings were up a blazing 16%. Operating cash flow improved by more than $1 billion to $7.6 billion through the first three quarters of the year.
Management is targeting 13% higher profits for its fiscal 2023 year, and that forecast was recently boosted from the prior 12% prediction. For context, earnings rose 11% in fiscal 2022. "We believe we are well-positioned to adapt and execute in a dynamic consumer environment," CEO Ramon Laguarta said in a conference call with analysts.
Looking ahead
These financial metrics imply another big dividend raise ahead in 2024, potentially approaching the 10% hike that management announced a year ago. While sales trends are weaker heading into the Q4 report, Pepsi is generating more cash and higher profits, even as it spends aggressively on growth initiatives like marketing.
The big question is how management sees consumer spending patterns holding up in 2024, and investors won't know those details until they review Pepsi's official outlook for the fiscal year. It's also possible that executives choose to return more cash to investors through stock buybacks instead of dividend payments this year after spending several years focused mainly on dividend growth.
In any case, Pepsi is almost certain to announce a significant dividend increase as part of its early February earnings update. This likely raise would be the company's 52nd consecutive annual increase, keeping it a member of the exclusive club of Dividend Kings that have boosted their payouts for at least 50 straight years.
Few companies can claim that kind of multi-decade streak, especially in the consumer staples industry. That's one reason why investors like PepsiCo as both an income investment and as a long-term holding in any diversified portfolio.
