PepsiCo Inc. (NASDAQ:PEP) announced on Tuesday that its board of directors has authorized the payment of the quarterly dividend for the first three months of fiscal 2018.
PepsiCo will pay shareholders a cash dividend of 80.5 cents per ordinary share.Ă‚ The dividend will be paid on March 30 to shareholders of record as of March 2. The ex-dividend date is scheduled for March 1.
Following the general downtrend on the equity markets over the last couple of days, PepsiCo is trading more affordably. Now, its current dividend yield is 2.79% versus an industry median of 2.16% and versus an S&P 500 current dividend yield of 1.82%. The stock is especially for long-term income investors but I would wait a bit longer before enhancing holdings of PepsiCo.
The RSI (14-days) is 29.40 for a 20 to 80 range. There are still some recesses for lower prices. Perhaps the current valuation already represents a unique opportunity, which means that the risk of missing it is high if investors do not step in right away. However, I believe taht the market correction has enough grease on it to go longer than generally perceived.
PepsiCo is one of the most regular dividend payers on the market. PepsiCo’s payees have received part of the company’s quarterly free cash flow for more than 52 years. Over this span of time, their annual dividend has been increased 45 times in a row. The next quarterly distribution represents a nearly 7% increase from the interim dividend that PepsiCo paid to its shareholders for the comparable of one year ago.
PepsiCo's portfolio is made up of a broad range of food and beverage products, which are consumed daily by the worldwide population. PepsiCo’s products are known in every corner of the world. These well-known brands include names such as Pepsi-Cola, Frito-Lay, Quaker, Gatorade, Doritos and Tropicana.
PepsiCo operations can generate an annual cash flow of $9.5 billion to $10 billion. Of that, 65% is free and levered. This means that albeit highly leveraged (debt-to-equity is 295% versus an industry average of 37%), PepsiCo’s business allows the company to allocate a sizeable amount of cash flow on dividend distribution and growth purposes. Furthermore, with an interest coverage ratio (ttm) of 7.46, the financial burden is not even a tickle on PepsiCo’s economics. An availability of more than $18 billion in cash, or $12.85 per share, supports the company’s solid balance sheet.
Currently, PepsiCo is paying out its free cash flow to its shareholders at a rate of 64% of net earnings. This is more than 4,545 basis points higher than the industry median. It is the proof that PepsiCo's business is financially sound.
For the fourth quarter and the entire year of 2017, consensus is for a net profit of $1.31 and $5.23 per share. Net revenues are predicted to hit $19.39 billion for the last three months of 2017 and at $63.42 billion for full fiscal 2017. If PepsiCo will at least meet consensus on the yearly figure of revenue, this will be a 1% growth from 2016. The growth estimate increases to 3.40% with 2018 net sales forecasted at $65.6 billion.
The company has a price-earnings (P/E) ratio of 23.52 times versus an industry average of 23.65 times.
PepsiCo, Inc. is currently trading at $113.56 per share. The stock has remunerated its shareholders with a 17.45% gained over the 52-weeks through Feb. 6 on the stock market. While the S&P 500 has returned a 7.10% to its holders. PepsiCo is also one of the key drivers of the index that is used as the most popular benchmark.
Some other indicators on PepsiCo: The company has a price-book (P/B) ratio of 12.19 times versus an industry median of 2.58 times and a price-sales (P/S) ratio of 2.56 times versus an industry average of 1.54 times.
These indicators suggest that PepsiCo is probably not one of the cheapest stocks at the moment. However, readers shouldn’t forget that this stock is for income investors and for very long-term horizons. Therefore, it is not for traders. Over the last few days of trading, PepsiCo lost about 6% from the end of January levels, pulling back the share price under the 200, 100 and 50-SMA lines. The current market valuation is a 52-week range of $104.77 to $122.51 per share. The RSI (14-days) is not at “oversold levels” but is close. Chances to bottom at its 52-week low are few but it is worth to take the risk and attempt a waiting strategy with this loyal and incredible disperser of free cash flow.
The compass here is on a forward PE earnings below the industry median of 20 times. Also, it includes a factoring in of the 2018 predicted 8.40% growth in the forward dividend as much as possible. A forward dividend of 2.81% is already well beyond the industry average of 2.30%.
(Disclosure: I have no positions in any security mentioned in this article.)
