The stock has returned a 7.60% average annual return over the past decade, fueled by the company’s strong growth in earnings.
Since the year 2000, PepsiCo has managed to deliver a 9.90% average annual increase in earnings per share. The company has also managed to implement a share buyback where it purchased almost 1.7% of outstanding stock on average each year since 2001. After it acquired Pepsi Bottling Co. and PepsiAmericas the company's Board of Directors also authorized the repurchase of up to $15 billion of PepsiCo common stock through June 2013. At current prices this represents approximately 14.40% of the stock outstanding.
Analysts are expecting EPS growth to $4.17 in FY 2010, which would be a 10.60% increase in comparison to FY2009 EPS of $3.77. The expectations for FY 2011 are for EPS to reach $4.65, which would be an 11.50% increase.
Earnings growth could come from synergies associated with the acquisitions of its bottlers, streamlining of operations and cost cutting. The distribution networks of the bottlers acquired could be used to push some of PepsiCo’s non-beverage products such as snacks and other foods.
Earnings growth could also come from strategic acquisitions, as well as product innovations in health and wellness food and beverage section.
The return on equity has remained largely above 30%, with the exception of 2004, when it fell to as low as 22%.
Annual dividend payments have increased by 13.60% on average since 2000, which is much higher than the growth in earnings per share.
A 13.60% growth in dividends translates into the dividend payment doubling almost every five years. Since 1979 PepsiCo has actually managed to double its dividend payment every six years on average.
The dividend payout has remained below 50%, with the exception of a brief increase in 2008. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
PepsiCo (PEP) is a reliable dividend stock, which is attractively priced at the moment despite its forward yield of 2.90% being a tad lower than my entry requirement of 3%. My ideal entry price for PepsiCo would be $64. Dividend Investors waiting for better prices should weigh in the risks of waiting for a better price, versus the risk of missing out completely on any upside action if the company doesn’t go below $64/share.
Full Disclosure: Long PEP
Dividend Growth Investor