PepsiCo's (NASDAQ:PEP) Shareholders Will Receive A Bigger Dividend Than Last Year
PepsiCo, Inc.'s (NASDAQ:PEP) dividend will be increasing on the 30th of June to US$1.15, with investors receiving 7.0% more than last year. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.
Check out our latest analysis for PepsiCo
PepsiCo's Earnings Easily Cover the Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. PepsiCo was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 79% indicates it is more focused on returning cash to shareholders than growing the business.
Looking forward, earnings per share is forecast to rise by 10.3% over the next year. If the dividend continues on this path, the payout ratio could be 58% by next year, which we think can be pretty sustainable going forward.
PepsiCo Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from US$2.06 to US$4.30. This means that it has been growing its distributions at 7.6% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
PepsiCo Could Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see PepsiCo has been growing its earnings per share at 9.5% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
Our Thoughts On PepsiCo's Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. However, lack of cash flows makes us wary of the potential for cuts in the dividend's future, even though the dividend is generally looking okay. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for PepsiCo that investors need to be conscious of moving forward. Is PepsiCo not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
