PepsiCo Inc. (PEP, Financial) announced Friday, Nov. 17, that its board of directors has authorized the payment of the quarterly dividend for the last three months of fiscal 2017.
PepsiCo will pay to its shareholders a cash dividend of 80.5 cents per ordinary share of the company.
The dividend will be paid on Jan. 8 to shareholders of record as of Dec. 1. The ex-dividend date is scheduled for Nov. 30.
PepsiCo is a loyal dividend distributor because the company is regularly paying part of its free cash flow out to its shareholders in the form of dividend for something like 52 years.
The last quarterly cash dividend for fiscal 2017 that PepsiCo will pay to its shareholders represents a 6.9% increase from the first-quarter 2017 cash dividend of 75.3 cents.
If PepsiCo will hold the quarterly cash dividend for the next three quarters constant, it will lead to an annual dividend of $3.22 for a forward yield of 2.79%.
The company has increased its annual dividend for 45 times in a row.
PepsiCo is currently trading at $114.68 per share, with a market capitalization of $163.09 billion, a price-book (P/B) ratio of 12.31 versus an industry median of 2.58, a price-sales (P/S) ratio of 2.60 versus an industry median of 1.54 and a price-earnings (P/E) ratio of 23.74 versus an industry median of 23.65.
Even though PepsiCo is for income investors who are initially looking for a stable stream of dividends, the company looks to be too overvalued by the market at the moment to either establish a position or increase an existing one. The company is trading at a book value much higher than its peers, as well as its trailing 12-months earnings.
But price-book ratio and PE ratio (ttm) – compared to the industry medians – are not the only indicators that can be used to judge whether PepsiCo is overvalued or not.
If we check PepsiCo’s current market value against its 50, 100 and 200 simple moving average lines, we can see that the multinational beverage company – that year to date has gained 10% – is trading over these lines. This means that now PepsiCo is not trading at one of its lowest since the beginning of 2017.
To have an idea about PepsiCo’s value, we can also compare the current market value of PepsiCo with its 52-week range that as of today is $98.50-$119.39. The company is trading only 4.10% lower than its 52-week high price.
Further, with an average target price of $122.58 that analysts expect PepsiCo to reach within the next 52-week period, the margin of growth in the market value of Pepsi is only 6.9%.
However, Pepsi is for income investors and is paying an annual dividend that, when related to the current market value, yields 2.79%, which is higher than the S&P 500 current dividend yield of 1.87%. This also needs to be taken into consideration, as well as that companies such as PepsiCo are seen by investors as companies that produce and sell products that people are not willing to forfeit because on certain preferences they don’t easily change their habits.
PepsiCo’s business longevity is the hallmark for the shareholders of the company to get paid.
In addition, the company is distributing dividends to its shareholders according to a payout ratio of 64.36% (versus an industry median of 44%) of net earnings that for the fourth quarter of fiscal 2017 and for full fiscal 2017 are expected to average $1.30 per share and $5.22 per share. These are forecasted by analysts to be backed on a quarterly figure for revenue of $19.41 billion and a figure for full fiscal 2017 revenue of $63.41 billion. The latter represents a nearly 1% increase from 2016 when PepsiCo’s revenue came in at approximately $63 billion and which was “driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana,” the company reports.
Earnings are expected to grow 7.6% in 2017 and 7.3% in 2018 and according to an annual average rate of 6.36% over the following five years.
Disclosure: I have no positions in PepsiCo Inc.
