PepsiCo, Inc. (NYSE:PEP) is a snack, food, and beverage company and is one of the top players in the beverage industry. PepsiCo has enjoyed a long history of generating strong financial growth for its investors. With some the globe’s most-recognized brands and a commitment to sustainability, the company was able to generate long-term growth. Let’s look at the company’s ability to sustain its consistently increasing returns.
Dividend and Growth
PepsiCo, Inc. (NYSE:PEP) has a long history of consistently increasing dividends. Recently, the company announced a quarterly dividend of 57 cents a share, representing an increase of 6% over the previous quarter. This is the 41st consecutive increase in its annual dividend. Over the past five years, PepsiCo has been able to increase its dividends by 33.5%. In the trailing 12 months (ttm), its payout ratio based on dividends stands at 55.1%. In the past five years, the company has managed to maintain its payout ratio around 50%.
PepsiCo, Inc. (NYSE:PEP)’s stock has shown a delightful surge over the past six months, appreciating by nearly 19%. In the last five years, the stock risen by more than 25% with few shortfalls. At present, the stock is trading at a price-to-earnings (PE) ratio of 21, which is better than the industry average. Its forward PE of 17 indicates that the PepsiCo has strong upside potential.
Recently, PepsiCo announced first-quarter results with core earnings of $0.77 a share, an increase of 12%. At the end of the first quarter, PepsiCo, Inc. (NYSE:PEP) has generated solid organic revenue and double-digit earnings growth. The company’s investments in creating a strong portfolio of balanced food and beverage products enable it to sustain solid top-line growth.
Further, PepsiCo has the potential to generate hefty cash flows. In the trailing 12 months, its operating cash flow stands at $9.9 billion. The company is looking to return $3.4 billion in dividends and nearly $3.0 billion in share repurchases. Its free cash flows are providing adequate cover to dividend payments. In the past 12 months, its free cash flow stands at $7.1 billion while dividends only account for $3.3 billion.
PepsiCo, Inc. (NYSE:PEP) is getting more success in new emerging markets. Like its competitor The Coca-Cola Company (NYSE:KO), PepsiCo realizes the significance of creating a diversified portfolio of snack products to attract customers all around the globe. Therefore, the company is seeking to enter new markets along with its concentration of improving the productivity and efficiency of its operating system.
To do this, it is making enormous investments into innovation and marketing. Recently, it introduced several new Indian products such as Nutri Poha, a rice dish under the Quaker brand, a mango version of Slice soda and Quaker oats with Indian flavors to attract the Indian consumers. Also, to sustain or gain new market share, PepsiCo, Inc. (NYSE:PEP) is looking to increase its marketing and advertising expense to 5% to 7% of sales.