U.S. markets close in 27 minutes
  • S&P 500

    3,665.45
    -27.78 (-0.75%)
     
  • Dow 30

    29,317.29
    -273.12 (-0.92%)
     
  • Nasdaq

    10,847.08
    -20.84 (-0.19%)
     
  • Russell 2000

    1,664.52
    -15.07 (-0.90%)
     
  • Crude Oil

    76.88
    -1.86 (-2.36%)
     
  • Gold

    1,634.30
    -21.30 (-1.29%)
     
  • Silver

    18.42
    -0.49 (-2.59%)
     
  • EUR/USD

    0.9622
    -0.0066 (-0.68%)
     
  • 10-Yr Bond

    3.8780
    +0.1810 (+4.90%)
     
  • GBP/USD

    1.0699
    -0.0158 (-1.45%)
     
  • USD/JPY

    144.5760
    +1.2560 (+0.88%)
     
  • BTC-USD

    19,182.13
    +208.31 (+1.10%)
     
  • CMC Crypto 200

    440.48
    +7.38 (+1.71%)
     
  • FTSE 100

    7,020.95
    +2.35 (+0.03%)
     
  • Nikkei 225

    26,431.55
    -722.28 (-2.66%)
     

Just Three Days Till PepsiCo, Inc. (NASDAQ:PEP) Will Be Trading Ex-Dividend

·4 min read

PepsiCo, Inc. (NASDAQ:PEP) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase PepsiCo's shares before the 1st of September in order to receive the dividend, which the company will pay on the 30th of September.

The company's next dividend payment will be US$1.15 per share, on the back of last year when the company paid a total of US$4.60 to shareholders. Calculating the last year's worth of payments shows that PepsiCo has a trailing yield of 2.6% on the current share price of $175.04. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for PepsiCo

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. PepsiCo paid out more than half (66%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 94% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While PepsiCo's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to PepsiCo's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at PepsiCo, with earnings per share up 8.8% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, PepsiCo has increased its dividend at approximately 8.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has PepsiCo got what it takes to maintain its dividend payments? PepsiCo is paying out a reasonable percentage of its income and an uncomfortably high 94% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in PepsiCo despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 3 warning signs for PepsiCo that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here