PepsiCo (PEP) Dividend Stock Analysis
Sector: Consumer Defensive
Industry: Beverage – Non Alcoholic
The PepsiCo dividend has been paid quarterly since 1965 and increased for 49 consecutive years; qualifying the company as Dividend Aristorcrat and Dividend Champion.
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: $4.30
Pepsi (PEP) Intrinsic Value & Margin of Safety Analysis
(updated November 2021)
Normalized Diluted Earnings Per Share (TTM): $5.87
Cash Flow From Operations Per Share (TTM): $8.01
Free Cash Flow Per Share (TTM): $4.81
Estimated Intrinsic Value: $130
Target Buy Price Based on Required Margin of Safety = $108
(Required Margin of Safety Based On Risk Stability Grade:
A = 10%, B = 20%, C = 30%, D = 40%, F = 50%)
Target SELL Price Based on Estimated Intrinsic Value = $149
(Allow Overvaluation Adjusted by Risk Stability Grade:
A = 20%, B = 15%, C = 10%, 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: 9/30/21
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AAAMP Portfolios Position Disclosures:
Dividend Growth & Income – None
Treasure Trove Twelve – None
Global Dividend Balanced – None
Global Value – None
Global Value Aggressive – None
High Yield – None
Sector: Consumer Defensive
Industry: Beverages – Soft Drinks
PepsiCo (PEP) is the global leader in the manufacture, marketing, and distribution of food (52%) and beverages (48%). The company is # 2 only to Coca-Cola in beverages, and # 1 in snacks. Profits are derived approximately 58% from the United States and 42% international.
PepsiCo concentrates on convenience items that “go from package to consumption in seconds”. The company divides itself into 6 segments:
PepsiCo America Beverages (34% of Revenues)
Frito-Lay North America (25%)
PepsiCo Europe Sub-Saharan Africa (16%)
Latin America Foods (11%)
PepsiCo AMEA (Asia, Middle East, North Africa) 10%
Quaker Foods North America (4%)
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!
SWOT Analysis For PepsiCo
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. This is substantial savings for a company that earned between 4 and 7 billion dollars each of the last 10 years.
The Carbonated Soft Drink beverage market is declining in developed markets due to changing consumer demands favoring more healthy options.
The dominating distribution network and marketing prowess of PepsiCo allow it to successfully add products that are gaining favor with consumers.
Approximately 25% of PepsiCo revenues come from everyday
nutrition products. The company is transforming its product offerings as consumer preferences gravitate toward more healthy eating. This is providing PepsiCo the opportunity for topline growth.
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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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.