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PepsiCo (PEP) Dividend Stock Analysis

by | Dividend Kings

PepsiCo Dividend

Sector: Consumer Defensive

Industry: Beverage – Non Alcoholic

The PepsiCo dividend has been paid quarterly since 1965 and increased for 53 consecutive years; qualifying the company for the prestigious Dividend King List. 

The breath of products and top brands offered by PepsiCo, along with the scale at which it operates, means PepsiCo conducts business with a large moat.

Current Dividend Annualized: $5.42

PepsiCo Logo

Pepsi (PEP) Intrinsic Value & Margin of Safety Analysis          

 (updated May 2024)

Normalized Diluted Earnings Per Share (TTM):  $6.64
Free Cash Flow Per Share (TTM): $5.24
Cash Flow From Operations Per Share (TTM):  $9.26

Estimated Intrinsic Value: $170

Target Buy Price Based on Required Margin of Safety =  $142
(Required Margin of Safety Based On Risk Stability Grade:

A = 0%, B = 20%, C = 40%, D = 60%, F = 80%)

Target SELL Price Based on Estimated Intrinsic Value = $195
(Allow Overvaluation Adjusted by Risk Stability Grade:

A = 40%, B = 25%, C = 15%, D = 5%, F = 0%)

 

Dividend Value Builder Grades

Risk / Stability Grade: B

A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.

B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.

C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.

D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.

F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.

 

Financial Risk  Grade:  B

A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.

B grade indicates a very low probability for a dividend cut.

C grade indicates a low probability for a dividend cut and/or average safety risk.

D grade indicates there are issues that should be considered concerning future dividend payments.

F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.

 

Business Quality Grade:  A

A grade indicates earnings quality is high or far above average.

B grade indicates earnings quality is good and/or above average.

C grade indicates earnings quality is acceptable or average.

D grade indicates earnings quality is poor and requires thoughtful due diligence.

F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.

Earnings Report: 3/31/24

 

PepsiCo KeVita Products
Select Pepsi Products
Old Fashioned 60's Pepsi Bottle
PepsiCo Collage of Products

AAAMP Portfolios Position Disclosures:
Dividend Growth & Income (DGI) – None
Treasure Trove Dividend (TTD) – LONG
Global Dividend Value (GDV) – None
Global Value (GV) – None
Global Value Aggressive (GVA) – None
Global Conservative Income (GCI) – None 
Global Aggressive Income (GAI) – None

Company Description

Sector: Consumer Defensive
Industry: Beverages – Soft Drinks

PepsiCo is a global leader in snacks and beverages, owning well-known household brands. The company dominates the global savory snacks market and also ranks as the second-largest beverage provider in the world (behind Coca-Cola) with diversified exposure to carbonated soft drinks, or CSD, as well as water, sports, and energy offerings.

Convenience foods account for approximately 55% of its total revenue, with beverages making up the rest. The product portfolio of PepsiCo includes the following 22 brands with annual sales in excess of 1 billion:

Pepsi, Diet Pepsi, Pepsi Max, Mountain Dew, Diet Mountain Dew, 7 Up, Miranda, Sierra Mist, Gatorade, Tropicana, Lipton, Aquafina, Brisk, Starbucks RTD Beverages, Lay’s, Doritos, Quaker, Cheetos, Ruffles, Tostitos, Fritos, and Walkers.

Quite an impressive list!

PepsiCo Snack Products
Lays Brand Logo
PepsiCo Products

SWOT Analysis For PepsiCo

Strengths

PepsiCo has a wide economic moat because of its dominant snack brands. Competitive advantages include economies of scale, an adapting product line, strategic assets, and barriers to entry. The company estimates nearly $1 billion in synergies due to the the marketing and distribution of snacks and beverages together. 

Weaknesses

Shifting consumer preference to healthier snacks and beverages may impede the firm’s ability to pass on higher costs in price increases thus weighing on margins and returns.

Opportunities

The dominating distribution network and marketing prowess of PepsiCo allow it to successfully add products that are gaining favor with consumers. Demographic and lifestyle shifts could further fuel snack consumption globally beyond our expectations.

Threats

Governments are toying with taxes on sugary products to raise revenue. In a few cases attention is being put on reducing consumption to try and force a more healthy lifestyle on citizens.

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Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.