A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. PepsiCo Inc (NASDAQ:PEP) has returned to shareholders over the past 10 years, an average dividend yield of 3.00% annually. Let’s dig deeper into whether PepsiCo should have a place in your portfolio. View out our latest analysis for PepsiCo
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
Does PepsiCo pass our checks?
The current trailing twelve-month payout ratio for PEP is 93.93%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 62.36%, leading to a dividend yield of around 3.65%. In addition to this, EPS should increase to $5.76, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of PEP it has increased its DPS from $1.7 to $3.71 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes PEP a true dividend rockstar.
Compared to its peers, PepsiCo has a yield of 3.50%, which is high for Beverage stocks but still below the market’s top dividend payers.
Considering the dividend attributes we analyzed above, PepsiCo is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for PEP’s future growth? Take a look at our free research report of analyst consensus for PEP’s outlook.
- Valuation: What is PEP worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PEP is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.