PepsiCo's largest competitors include The Coca-Cola Company (NYSE:KO) and Dr Pepper Snapple Group Inc. (NYSE:DPS). There is an intense competition between the two companies. The companies not only compete in soft drinks, but also have branched out to other beverages including coffee, juice drinks and even water. If Pepsi were to offer a new product it wouldn't be surprising to see Coca-Cola follow suit. Coca-Cola entered foreign markets differently than Pepsi, providing it an edge over Pepsi. While Pepsi invested heavily in foreign markets, Coca-Cola's appointed bottlers with significant experience easily neutralized any threat PepsiCo could pose. As of March 2011, Pepsi was knocked into third place behind Coca-Cola and Diet Coke; Diet Coke outsold Pepsi in 2010.
Coca-Cola offers constantly growing dividends with stable price appreciation. The company is also backed its return with a solid financial position. The company is looking to shift its focus toward franchising. This means Coca-Cola is moving its revenue base more towards fees instead of sales. With the move in revenue generation, I think Coca-Cola will sustain its returns over the long term.
Over the next decade Coke's global reach should give it the edge in the regions that offer the greatest growth. Moreover, Pepsi's success with snack foods may prove harder to maintain as consumers worry more about salt and fats.
None of this means PepsiCo is a bad stock. But its strengths are widely recognized, while Coca-Cola's prospects get little recognition. In fact, analysts still project lackluster earnings growth for Coca-Cola, despite the company's recent successes.
As a result, Coke's shares yield nearly a percentage point more than PepsiCo's and trade at a lower P/E. Either company makes sense as a defensive pick.
The most recent dividend increase was in February 2013, when the board of directors approved a 5.60% increase in the quarterly dividend to 56.75 cents per share. Since 2003, the company has managed to deliver an average increase in EPS of 7.40% per year. From an almost non-existent earnings growth since 2009, the company is expected to earn $4.39 per share in 2013 and $4.77 per share in 2014. This implies an increase from the $3.92 per share the company earned in 2012. PepsiCo has consistently managed to repurchase 1.10% of its outstanding shares every year, on average over the past decade. The company’s innovation has been successful with the introduction of Aquafina, Gatorade and Propel, Lipton teas, and Tropicana. The company’s chances of market leadership are quite high with the synergy benefits coming from the acquisitions of its bottlers, streamlining of operations and cost cutting. From these acquisitions, earnings growth is also likely to increase. In 2011, PepsiCo acquired the leading Russian food and beverage company Wimm-Bill-Dann (WBD), building its nutrition business.
In order to cut costs by $3 billion through 2014, PepsiCo is also undergoing a strategic initiative. The company has a high return on equity which has remained above 30%, with the exception of a brief decrease in 2005 and 2012. By increasing advertising budgets, the company is heavily investing in its brands in North America. To offset the inflation costs the company is also increasing prices of its products. This could impact the consumers more resistant to PepsiCo's products. Since 2002, the annual dividend payment has increased by 13.60% per year. A 14% growth in distributions translates into the dividend payment doubling every five years. PepsiCo has managed to double its dividend every five years on average. Dividend growth has slowed down over the past few years, mostly due to flat earnings since the end of the financial crisis. The dividend payout ratio has increased to 54% in 2012 from 30% in 2003. Currently, PepsiCo yields 2.70% with a sustainable payout.
The quarterly dividend of $0.5675 is payable on June 28, 2013, to shareholders of record as of June 7, 2013. PepsiCo is focused on delivering sustainable long-term growth and strong cash returns to shareholders.
The company's top and bottom lines have headed irregularly higher over the last decade. However, 2012 was a relatively difficult year. That's led to share a recent pullback. The stock price has been on a steady ascent for more than thirty years, though, so history suggests that any price weakness will be made up for overtime. Meanwhile, the stock recently yielded around 2.8% and has a long history of annual dividend increases.
The stock's beta is only 0.3 or so. If the market were to fall 10%, PepsiCo stock would be expected to fall around 3%. The ease of keeping tabs on PepsiCo, a low beta, and a regularly increased dividend make this a good company for fearful investors to own.
With net revenues of more than $65 billion and a product portfolio that includes 22 brands that generate more than $1 billion each in annual retail sales, PepsiCo is committed to sustainable growth by investing in a healthier future for the investors. PepsiCo is providing stable returns to its shareholders over the years. The company is expected to keep up the momentum with a forward PE of 17.1. The company is expecting to grow its earnings per share by 7% over the next year. This indicates that the company will keep its history of consistently increasing dividends. With the recent details of its financials, PepsiCo is expected to quench the thirst of its consumers in the recent times to come.