Dividend Aristocrats Part 46: PepsiCo, Inc. (PEP)

PepsiCo’s Safety – Volatility & Competitive Advantage

PepsiCo’s stock price is very stable. The company’s stock price standard deviation over the last decade is just 17.5% – one of the lowest of any stock. For context, the only large corporations with 25+ years of dividend payments without a reduction to have a lower stock price standard deviation are:

– General Mills (GIS)

– Southern Company (SO)

– Johnson & Johnson (JNJ)

– Consolidated Edison (ED)

The company’s low stock price standard deviation is a reflection of the safety and stability derived from PepsiCo’s strong and durable competitive advantage.

PepsiCo’s competitive advantage comes from its global operating scale and strong brands. The company’s competitive advantage is extremely durable due to the slow changing nature of the snack and beverage industry.

All 22 of PepsiCo’s brands that generate over $1 billion a year in sales are shown below:

PepsiCo's 22 Billion Dollar Brands

Source:  PepsiCo Brand Explorer

PepsiCo, Inc. (NYSE:PEP) builds and supports its brands through large advertising and marketing spending. The company’s advertising and marketing spending over its last 3 full fiscal years is shown below:

– 2014 advertising and marketing spend of $3.9 billion

– 2013 advertising and marketing spend of $3.9 billion

– 2012 advertising and marketing spend of $3.7 billion

PepsiCo’s ability to spend billions of dollars on advertising each year is a competitive advantage that smaller competitors simply cannot enjoy. As a result, the company’s brands are widely known and purchased throughout the world.

PepsiCo’s Safety – Recession Performance

PepsiCo performs well during recessions.

The company’s low priced consumer food and beverage products are in demand regardless of the economic climate.

PepsiCo’s earnings-per-share throughout the Great Recession of 2007 to 2009 are listed below to show the company’s stability through recessions:

– 2007 earnings-per-share of $3.34

– 2008 earnings-per-share of $3.21

– 2009 earnings-per-share of $3.77

PepsiCo’s earnings-per-share experienced only a minor dip through the worst of the Great Recession.

The company actually hit a new earnings-per-share high in 2009 while many other large corporations were struggling to stay profitable.