PepsiCo Inc. (NASDAQ:PEP) has announced the payment of the quarterly dividend for the third trimester of fiscal 2018.
The company is expected to pay shareholders a $92.75 quarterly cash dividend per ordinary share. The dividend will be paid on Sept. 28 to shareholders of record as of Sept. 7. The ex-dividend date is scheduled for Sept. 6. The payment is on par with the previous one and represents a 15.2% growth compared to the same quarter of 2017.
If held constant, the quarterly cash dividend will lead to a forward annual dividend of $3.71 granting 3.44%. The stock in PepsiCo offers a higher remuneration than most of its peers since the industry median is standing at 2.21%.
The company is dispersing free cash flow to its shareholders based on a 94.43% rate of its net earnings. The company distributed dividend for $4.53 billion to the holders of the common stock in PepsiCo over the last 12 months of trading. That amount of distributed cash represents an 83% of the trailing 12 months free cash flow.
The company is able to allocate a sizeable portion to shareholders, thanks to a fruitful portfolio of products that are consumed by the worldwide population every day. The portfolio is composed of a wide range of food and beverage products, which 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.
The balance sheet of PepsiCo is highly leveraged with a debt-to-equity ratio of 402%. The industry has a median for the debt-to-equity ratio of 37%. However, the company doesn’t have any problem in paying interest expenses on the outstanding debt. That is indicated by an interest coverage ratio of 8.43.
The stock in PepsiCo is rising since the beginning of May and is now trading above the 200, 100 and 50-SMA lines. The stock is not trading cheaply, also because the current share price of $112.69 is above the midst of the 52-weeks range of $95.94 to $122.51 per share and only 8.7% far from the highest.
PepsiCo has a price-book ratio of 15.77 times versus an industry median of 2.56 times, a price-sales of 2.5 times versus an industry median of 1.36 times and a price-earnings ratio of 35.11 versus an industry median of 23.36 times.
The chart below powered by GuruFocus also indicates that the stock is not trading at its cheapest:
PepsiCo is an investment for dividend income investors rather than for traders, thanks to its 53-year record of paid dividends. I would wait for a substantial drop in the share price of the company, possibly back to early May levels.
PepsiCo has been capable of increasing the quarterly dividend 46 times in a row. A good balance sheet together with a 7.5% annual growth in net earnings for the next six years should allow the company to sustain further increases in the dividend. The 7.5% growth rate is what analysts are expecting today. The S&P 500 is predicted not to go beyond a yearly growth of 0.11%.
(Disclosure: I have no positions in any security mentioned in this article.)
