The stock market has been doing well lately. Over the last year, the S&P 500 has increased more than 20%.
That hasn't lifted all stocks, of course. PepsiCo's (PEP -0.62%) share price has dropped about 3% during this time.
While that's been rough for current investors, the stock remains appealing to dividend investors. And with a willingness and ability to continue paying dividends, the price drop only makes it more attractive. It's time to uncover why you should consider purchasing the stock after its divergence from the market.
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Well-known brands
PepsiCo has a host of well-known and popular beverage and snack brands. This includes Pepsi-Cola, Mountain Dew, Gatorade, Cheetos, and Quaker.
Adjusted sales, which exclude items such as foreign currency exchange translations, acquisitions, and divestitures, increased by 9% last year. But volume fell, and price increases were responsible for the gain.
That was undoubtedly off-putting to some investors. Still, management was able to pass along cost increases, and adjusted earnings per share (EPS) grew by 14%. The good news is that inflationary pressures appear to have abated.
I don't believe PepsiCo has permanently turned off customers. With popular products filling store shelves and venues, volume increases seem likely to follow as people adjust to higher product prices.
Lots of cash flow
Meanwhile, the business generates plenty of free cash flow (FCF). Last year, PepsiCo generated FCF of $7.9 billion.
Fortunately for income investors, it pays most of this out to shareholders as dividends. Last year's dividends totaled $6.7 billion. There's also a nice cushion that should give you confidence in its ability to continue payouts.
PepsiCo's stock has a 74% payout ratio. Management expects adjusted EPS to increase by at least 8% this year, helping support dividend payouts. It anticipates paying dividends of $7.2 billion.
Achieving royalty
Not only does PepsiCo have the ability to pay dividends, it has shown a deep commitment to increasing them.
Earlier this month, the board of directors announced a 7% increase in dividends to a new quarterly rate of about $1.36. Investors should welcome this news. Not only does it provide additional dividend income, it signals management's confidence in the future.
This made it 52 straight years that the board of directors has raised payouts. That makes PepsiCo a Dividend King, part of an illustrious group of companies that increased dividends for at least half a century.
PepsiCo has a 3.2% dividend yield based on the new payout rate. That's more than double the S&P 500's 1.4%.
While no one likes to see their stock investments lag behind the market, PepsiCo appears to be in a good position for the future. It has popular brands that people enjoy, and it continues to increase earnings and dividends.
With the stock price drop over the past year, the dividend yield combined with potential price appreciation makes PepsiCo's stock a compelling opportunity right now.
