PepsiCo Share Price Falters, Dividends Continue Strong Growth (PEP)

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PepsiCo, Inc. (NASDAQ:PEP) saw its share price’s growing trend reverse in 2018 but the company continued to provide its shareholders with rising dividends and boosted its quarterly payout for the 46^th consecutive year.

PepsiCo has been a reliable provider of a rising dividends for nearly five decades. In addition to the strong dividend payouts, the company’s share price also has rewarded investors with long-term gains despite occasional pullbacks.

Because of the company’s strong financial and operational fundamentals, its share price is bound to reverse its declining trend and resume rising. Therefore, investors could use the current share-price pullback to acquire an initial allotment of PepsiCo’s shares at a discounted price or add to an already existing PepsiCo position in their portfolio.

However, investors whose own research indicates that this company’s share price is ready to bounce back should move quickly to act before its May 31, 2018, ex-dividend date and stake their claim on a portion of the upcoming dividend distribution, which is set to occur on the company’s pay date of June 29, 2018.

PepsiCo, Inc. (NASDAQ:PEP)

Headquartered in Purchase, New York, and founded in 1898, PepsiCo, Inc. operates as a food and beverage company worldwide. The company’s beverage segment offers concentrates, fountain syrups, ready-to-drink tea and coffee, juices, bottled water and dairy products under multiple global and regional brands. In addition to its original beverage business, PepsiCo has been expanding its food business since the 1960s. By 2015, the company generated more than 50% of its global revenue from the food and snack business segment. On May 18, 2018, the company announced plans to delist its common shares from the Chicago Stock Exchange to eliminate costs associated with listings on two exchanges. The company expects to complete the listing withdrawal from the CSE within a month of May 18 announcement.

The company’s share price has been on a steady uptrend with minimal volatility since dropping 37% in the aftermath of the 2008-2009 financial crisis. Since reversing direction in February 2009, PepsiCo’s share price has risen nearly 150% before reaching its 52-week high in late January 2018. Even over a much shorter period of the trailing 12 months, the share price grew nearly 27% before peaking at $121.76 on January 26, 2018.

However, influenced by the overall market fears of interest rate hikes and a potential trade war with China, the share price joined the overall market sell-off that started in the first week of February. The stock dropped more than 18% before closing at its 52-week low of $96.16 on May 9, 2018.

Since bottoming out in early May, the share price has been showing signs of potential trend reversal and has gained 3.5% in the past two weeks to close on May 21 at 99.51. While the current decline is nowhere near the 37% drop from a decade ago, the recent positive news of potential trade agreements with China and reduced likelihood of interest rate spikes are early indications that PepsiCo’s share price should not endure prolonged declines. The current share price drop and additional small price reductions are most likely opportunities to acquire PepsiCo’s at a discounted price.

While the company’s share price is below its peak, PepsiCo’s dividend distributions continue their steadfast march higher. Over the past two decades, the company advanced its total annual dividend payout almost 630%, corresponding to an average growth rate of 10.4% per year. While the dividend growth rate has slowed down recently, the average annual growth rate is still 8.5% over the past five years.

The company boosted its annual dividend payout for the 46^th consecutive year with its current 15.2% quarterly dividend increase from last period’s $0.805 payout to the current $0.9275 distribution amount. Only 16 out of the current 51 companies designated as Dividend Aristocrats have longer annual dividend hike streaks than PepsiCo. Dividend Aristocrats are S&P 500 companies with a market capitalization of at least $3 billion that have raised their annual dividend payout for at least 25 consecutive years.

The company’s current quarterly dividend converts to a $3.71 annualized dividend distribution for 2018 and a 3.7% dividend yield, which is 33% higher than the company’s 2.8% average dividend yield over the past five years. Additionally, PepsiCo’s current 3.7% dividend yield is 92% higher than the 1.94% average yield of the overall Consumer Goods sector and nearly 80% above the 2.09% simple average yield of all companies in the Processed & Packaged Goods industry segment. Even compared to the 3.2% average yield of only the segment’s dividend-paying companies, PepsiCo’s current yield is still 16% percent higher.

The company’s share price experienced a 13.5% decline over the past year. However, the dividend payouts offset some of those losses and limited the total return to less than 11% over the past 12 months. While the share price pullback affected negatively the longer-term total returns, the company still delivered a total return of nearly 10% over the past three years and a 34% total return over the past five years.

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