How exciting -- a CAPS contest to see which company is the best blue chip for 2007. I hereby nominate a company I've long admired and finally invested in a few years ago: PepsiCo
Let me begin by describing the firm a little, because unbeknownst to many people, it's not mainly a beverage company! Sure, it has drinks galore, ranging from the flagship Pepsi-Cola to Gatorade, Mountain Dew, Propel, Tropicana fruit juices, Gatorade, Aquafina bottled water, Lipton iced teas, and more. But in its own words, it's "one of the world's largest food and beverage companies with annual revenues of more than $32 billion . Its portfolio includes 17 brands that generate $1 billion or more each in annual retail sales."
While beverages in North America grew just 4% in fiscal 2005, the company's salty snacks division grew a little faster, at 4.5%. It's hard to think of a major salty snack brand that doesn't belong to PepsiCo. Familiar foods under its umbrella include Tostitos, Doritos, Cheetos, Lays, Sun Chips, Ruffles, Rold Gold, and more. Frito-Lay owns more than half of the U.S. snack industry.
PepsiCo's Quaker Foods unit, featuring items such as Cap'n Crunch, Life cereal, Rice-a-Roni, Aunt Jemima batter mix and syrup, and of course oatmeal, sported volume growth of 9%. And the international division saw snacks grow by 7% and beverages by 11%.
The company's return on invested capital for the year was a solid 22%, and it has increased its dividend at an average annual rate of 12% over the past 20 years and 9% over the past decade. The current dividend yield, while not stratospheric, is a still-attractive 1.9%. (Don't ignore the power of dividends to deliver great wealth.)
Here are a few more quick facts:
- In the United States, the company is No. 1 in sports drinks, enhanced water, ready-to-drink coffee, chilled juices and juice drinks, potato chips, tortilla chips, corn chips, hot cereal, grits, rice side dishes, branded pancake syrup, and pancake mixes. It's No. 2 in carbonated soft drinks, ready-to-drink tea, and pretzels.
- In the U.S., PepsiCo's share of the convenient food and beverage market is a whopping 22%, more than any other firm. Coke's share is half that, at 11%, and Kraft Foods
(NYSE:KFT)sits at 8%. It's the third-largest food and drink company on earth, having recently moved ahead of Unilever (NYSE:UL)and is now behind Nestle and Kraft.
- The company just named a new CEO, a rare woman in the top echelon of American corporations. Better still, Indra Nooyi was promoted from within, having served the company for many years. The 14 directors on the company's board include four women, also a relatively impressive showing.
In sum, this is one of my favorite companies. Will it grow faster than most others? Probably not. But it is growing, and it has a wide competitive moat. It's rewarded investors well over the years, and I don't expect that to change. Over the past 20 years, the stock has advanced by an annual average of 16%, which is not too shabby for a giant.
What do you think?
But enough about what I think. What do you think? Register your opinion in our Motley Fool CAPS community intelligence database. You can rate PepsiCo as outperforming or underperforming the market. To let your voice be heard, click here. Based on the responses of our readers and participants, we'll declare the best blue chip of 2007 early next week.
To read about the rest of our blue-chip candidates, click here.
Longtime Fool contributor Selena Maranjian owns shares of Coca-Cola and PepsiCo. Last time she checked, she was ranked 1,005 out of 12,404 in CAPS. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.