Up to date on April twenty sixth, 2024 by Bob Ciura
We imagine the Dividend Aristocrats are the “cream of the crop” of the U.S. inventory market. The Dividend Aristocrats are a gaggle of S&P 500 shares which have elevated their dividends for at the very least 25 years, amongst different necessities.
With this in thoughts, we created an inventory of all 68 Dividend Aristocrats, together with vital monetary metrics comparable to dividend yields and price-to-earnings ratios.
You may obtain your free listing of all 68 Dividend Aristocrats by clicking on the hyperlink beneath:
Disclaimer: Certain Dividend shouldn’t be affiliated with S&P World in any approach. S&P World owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet relies on Certain Dividend’s personal overview, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s based mostly. Not one of the data on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official data.
We overview all of the Dividend Aristocrats annually. Subsequent up, we’ll overview the meals and beverage big PepsiCo (PEP).
The inventory affords a stable 2.9% dividend yield and has elevated its dividend for over 50 years in a row. The corporate’s dividend could be very secure, and the inventory is appropriate for risk-averse earnings buyers.
PepsiCo’s valuation shouldn’t be precisely a cut price proper now, however it’s not often an inexpensive inventory on account of its wonderful enterprise mannequin and regular development. The corporate ought to have little hassle persevering with to boost its dividend for a few years.
Enterprise Overview
Pepsi-Cola was created within the late Nineties by Caleb Bradham, a North Carolina pharmacist. In the meantime, Frito-Lay, Inc. was fashioned in 1961 from the merger of Frito Firm and the H. W. Lay Firm. In its present type, PepsiCo got here collectively on account of the 1965 merger of Pepsi-Cola and Frito-Lay.
At present, PepsiCo is a worldwide meals and beverage big. It has a market capitalization above $240 billion and generates roughly $80 billion of annual income.
Its enterprise is cut up roughly 60-40 by way of meals and beverage income. Additionally it is balanced geographically between the U.S. and the remainder of the world.
Supply: Investor Presentation
PepsiCo has a big portfolio and owns many well-liked manufacturers. A few of the firm’s main manufacturers embrace Pepsi and Mountain Dew sodas and non-sparkling drinks like Pure Leaf, Tropicana, Gatorade, and bottled water.
Along with PepsiCo’s core beverage manufacturers, it additionally has a big snacks enterprise below the Frito-Lay model. The corporate has additionally constructed a portfolio of more healthy meals, together with Quaker, Bare, and Sabra.
On April twenty third, 2024, PepsiCo reported first-quarter outcomes for the interval ending March thirty first, 2024. For the quarter, income elevated 2.2% to $18.25 billion, which topped estimates by $140 million. Adjusted earnings-per-share of $1.61 in contrast favorably to $1.50 within the prior yr and was $0.09 higher than anticipated. Forex change diminished income by 0.5%.
Natural gross sales had been up 2.7% for the primary quarter, beating consensus estimates of two.3%. Beverage quantity was flat whereas and handy meals quantity declined 0.5%. PepsiCo Drinks North America’s income grew 1% organically as larger costs greater than offset a 5% lower in quantity. Frito-Lay North America grew 2% at the same time as quantity declined 2%.
PepsiCo offered an up to date outlook for 2024 as effectively, with the corporate now anticipating adjusted earnings-per-share development of at the very least 8% for the yr, up from 7% beforehand. Natural gross sales are nonetheless projected to be up at the very least 4%.
Progress Prospects
PepsiCo has an extended historical past of regular development. Even in a difficult atmosphere on account of declining soda consumption, PepsiCo has continued its constant development.
We imagine PepsiCo will generate 6% adjusted earnings-per-share development per yr over the following 5 years. Going ahead, two of PepsiCo’s most promising catalysts are development in more healthy meals and drinks and rising markets.
Giant soda corporations like PepsiCo have needed to adapt to a extra health-conscious shopper. To do that, PepsiCo has shifted its portfolio towards more healthy meals which are resonating extra strongly with altering shopper preferences.
As well as, PepsiCo has an enormous development alternative in rising markets like China, Africa, India, and Latin America.
Supply: Investor Presentation
These are under-developed areas of the world with giant shopper populations and excessive financial development charges.
Worldwide markets (an significantly rising markets) had been a development driver as soon as once more in 2023, and within the 2024 first quarter.
Final quarter, income in Europe had been up 10%, aided largely by a 7% enhance beverage quantity and a 2% enchancment in meals quantity.
Income in Latin America elevated 8%, Africa/Center East/South Asia was up 7%, and the Asia Pacific/Australia/New Zealand/China area grew 11%.
Aggressive Benefits & Recession Efficiency
PepsiCo has quite a few aggressive benefits. Amongst them are sturdy manufacturers and a worldwide scale. In all, PepsiCo has ~20 particular person manufacturers that every acquire at the very least $1 billion in annual income. Sturdy manufacturers give PepsiCo optimum shelf house at retailers, and provides the corporate pricing energy.
PepsiCo’s monetary energy additionally permits the corporate to put money into analysis and growth and promoting to retain its aggressive benefits.
For instance, PepsiCo invests billions annually in analysis and growth to innovate new merchandise and packaging designs. As well as, PepsiCo recurrently spends greater than $2 billion annually on promoting to keep up market share and construct model fairness with customers.
PepsiCo’s aggressive benefits and powerful manufacturers make the corporate extremely worthwhile, even throughout recessions. Meals and drinks all the time retain a sure degree of demand, which is why the corporate held up so effectively throughout the Nice Recession.
PepsiCo’s earnings-per-share all through the Nice Recession of 2007-2009 are listed beneath:
2007 earnings-per-share of $3.34
2008 earnings-per-share of $3.21 (3.9% decline)
2009 earnings-per-share of $3.77 (17% enhance)
2010 earnings-per-share of $3.91 (3.7% enhance)
As you possibly can see, PepsiCo’s earnings-per-share declined solely modestly in 2008. The corporate proceeded to develop earnings by practically 20% in 2009, which could be very spectacular. Earnings continued to develop as soon as the recession ended.
The corporate reported sturdy development in 2020 and 2021 when the coronavirus pandemic despatched the U.S. financial system right into a recession. Due to this fact, PepsiCo is a recession-resistant enterprise.
Valuation & Anticipated Returns
PepsiCo is anticipated to generate earnings-per-share of $8.23 for 2024. Based mostly on this, the inventory trades for a price-to-earnings ratio of 21.4. Our honest worth estimate is a price-to-earnings ratio of 21.0. Due to this fact, PEP inventory seems barely overvalued. A declining price-to-earnings ratio might cut back annual returns by 0.4% annually over the following 5 years.
In consequence, future returns will possible be comprised of earnings-per-share development and dividends. We anticipate PepsiCo to develop earnings-per-share annually by 6%. As well as, PepsiCo additionally has a 2.9% present dividend yield.
Nonetheless, the overvaluation weighs on the inventory’s anticipated returns. The mix of valuation modifications, earnings development, and dividends leads to complete anticipated returns of 8.5% per yr over the following 5 years.
PepsiCo has a safe dividend, with a projected dividend payout ratio of about 66% for 2024. This offers PepsiCo sufficient room to proceed growing the dividend at a price in-line with the expansion price of its adjusted EPS.
Few different corporations within the shopper staples sector can match its dividend development historical past. PepsiCo not too long ago achieved Dividend King standing in February 2022. As such, we proceed to price shares as a maintain.
Closing Ideas
PepsiCo is a really sturdy enterprise with a variety of category-leading manufacturers. Investing closely in new merchandise and acquisitions will possible proceed rising gross sales and earnings for a few years.
Shareholders ought to proceed to profit from PepsiCo’s sturdy enterprise by way of annual dividend will increase. The inventory is overvalued, which implies worth buyers ought to look forward to a extra enticing entry level earlier than shopping for shares.
That mentioned, PepsiCo stays a priceless holding for a dividend development portfolio.
Moreover, the next Certain Dividend databases include essentially the most dependable dividend growers in our funding universe:
For those who’re on the lookout for shares with distinctive dividend traits, take into account the next Certain Dividend databases:
The main home inventory market indices are one other stable useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month:
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