Dividend Aristocrats In Focus: PepsiCo

Up to date on March seventh, 2025 by Nathan Parsh

We consider the Dividend Aristocrats are the “cream of the crop” of the U.S. inventory market. The Dividend Aristocrats are a bunch of S&P 500 shares which have elevated their dividends for not less than 25 years, amongst different necessities.

With this in thoughts, we created an inventory of all 69 Dividend Aristocrats, together with essential monetary metrics reminiscent of dividend yields and price-to-earnings ratios.

You possibly can obtain your free record of all 69 Dividend Aristocrats by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend just isn’t affiliated with S&P World in any means. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet relies on Certain Dividend’s personal evaluation, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the info on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official info.

We evaluation all of the Dividend Aristocrats every year. Subsequent up, we’ll evaluation the meals and beverage large PepsiCo (PEP).

The inventory affords a strong 3.6% dividend yield and has elevated its dividend for over 50 years in a row. The corporate’s dividend could be very secure, and the inventory is appropriate for risk-averse revenue buyers.

PepsiCo’s valuation is effectively beneath its historic common, and it continues to publish strong outcomes.

Enterprise Overview

Pepsi-Cola was created within the late Eighteen Nineties by Caleb Bradham, a North Carolina pharmacist. In the meantime, Frito-Lay, Inc. was fashioned in 1961 from the merger of Frito Firm and the H. W. Lay Firm. In its present type, PepsiCo got here collectively on account of the 1965 merger of Pepsi-Cola and Frito-Lay.

At the moment, PepsiCo is a worldwide meals and beverage large with a market capitalization above $215 billion and roughly $92 billion in annual income.

Its enterprise is break up roughly 60-40 when it comes to meals and beverage income. Additionally it is balanced geographically between the U.S. and the remainder of the world.

Supply: Investor Presentation

PepsiCo has a big portfolio and owns many in style manufacturers. A number of the firm’s main manufacturers embody Pepsi and Mountain Dew sodas and non-sparkling drinks like Pure Leaf, Tropicana, Gatorade, and bottled water.

Along with PepsiCo’s core beverage manufacturers, it additionally has a big snacks enterprise underneath the Frito-Lay model. The corporate has additionally constructed a portfolio of more healthy meals, together with Quaker, Bare, and Sabra.

On February 4th, 2025, PepsiCo reported fourth-quarter and full-year outcomes for the interval ending December thirty first, 2024. For the quarter, income decreased 0.3% to $27.8 billion, which was $110 million beneath estimates. Adjusted earnings-per-share of $1.96 in contrast favorably to $1.78 within the prior 12 months and was $0.02 higher than anticipated.

For the 12 months, income grew 0.4% to $91.9 billion whereas adjusted earnings-per-share of $8.16 in comparison with $7.62 in 2023. Forex trade diminished income by 2.0% and earnings-per-share by 4%.

Natural gross sales have been up 2.1% for the quarter and a pair of.0% for the 12 months. For the quarter, quantity for each meals and beverage have been up 1%. PepsiCo Drinks North America’s income was unchanged, however quantity fell 3%. Frito-Lay North America declined 2% whereas quantity was additionally down 3%. Quaker Meals North America was down 2%.

PepsiCo offered an outlook for 2025 as effectively, with the corporate anticipating mid-single-digit progress for adjusted earnings-per-share progress.

Progress Prospects

PepsiCo has an extended historical past of regular progress. Even in a difficult atmosphere resulting from declining soda consumption, PepsiCo has continued its constant progress.

We consider PepsiCo will generate 6% adjusted earnings-per-share progress per 12 months over the following 5 years. Going ahead, two of PepsiCo’s most promising catalysts are progress in more healthy meals and drinks and rising markets.

Giant soda firms like PepsiCo have needed to adapt to a extra health-conscious client. To do that, PepsiCo has shifted its portfolio towards more healthy meals which are resonating extra strongly with altering client preferences.

As well as, PepsiCo has an enormous progress alternative in rising markets like China, Africa, India, and Latin America.

Supply: Investor Presentation

These are under-developed areas of the world with giant client populations and excessive financial progress charges.

Worldwide markets (significantly rising ones) have been a progress driver over the previous few years.

Final quarter, income in Europe was up 7%, aided largely by a 3% improve in beverage quantity and a 1% enchancment in meals quantity. Income in Latin America elevated 4%, Africa/Center East/South Asia was up 14%, and the Asia Pacific/Australia/New Zealand/China area grew 1%.

Aggressive Benefits & Recession Efficiency

PepsiCo has quite a few aggressive benefits, together with robust manufacturers and a worldwide scale. In all, PepsiCo has ~20 particular person manufacturers that every acquire not less than $1 billion in annual income. Sturdy manufacturers give PepsiCo optimum shelf house at retailers and pricing energy.

PepsiCo’s monetary energy additionally permits the corporate to spend money on analysis and growth and promoting to retain its aggressive benefits.

For instance, PepsiCo invests billions every year in analysis and growth to innovate new merchandise and packaging designs. As well as, PepsiCo repeatedly spends greater than $2 billion every year on promoting to keep up market share and construct model fairness with shoppers.

PepsiCo’s aggressive benefits and powerful manufacturers make the corporate extremely worthwhile, even throughout recessions. Meals and drinks all the time retain a sure stage of demand, which is why the corporate held up so effectively in the course of the Nice Recession.

PepsiCo’s earnings-per-share all through the Nice Recession of 2007-2009 are listed beneath:

2007 earnings-per-share of $3.34
2008 earnings-per-share of $3.21 (3.9% decline)
2009 earnings-per-share of $3.77 (17% improve)
2010 earnings-per-share of $3.91 (3.7% improve)

As you may see, PepsiCo’s earnings-per-share declined solely modestly in 2008. The corporate then elevated earnings by almost 20% in 2009, which could be very spectacular. Earnings continued to develop as soon as the recession ended.

The corporate reported robust progress in 2020 and 2021 when the coronavirus pandemic despatched the U.S. economic system right into a recession. Due to this fact, PepsiCo is a recession-resistant enterprise.

Valuation & Anticipated Returns

We anticipate PepsiCo to generate earnings per share of $8.59 for 2025. Primarily based on this, the inventory trades for a price-to-earnings ratio of 18.3. Our honest worth estimate is a price-to-earnings ratio of 24.0. Due to this fact, PEP inventory seems undervalued. A number of enlargement might add 5.6% to yearly annual returns over the following 5 years.

Earnings-per-share progress and the inventory’s dividend yield will even drive complete returns. We anticipate PepsiCo to develop earnings-per-share every year by 6%. As well as, PepsiCo additionally has a 3.6% present dividend yield.

The mix of valuation adjustments, earnings progress, and dividends leads to complete anticipated returns of 14.6% per 12 months over the following 5 years.

PepsiCo’s dividend is safe, with a projected payout ratio of about 66% for 2025. This provides PepsiCo sufficient room to proceed growing the dividend at a price consistent with the expansion price of its adjusted EPS.

Given the overall return potential and the corporate’s total high quality, we price shares of PepsiCo as a purchase.

Ultimate Ideas

PepsiCo is a really robust enterprise with a number of category-leading manufacturers. Investing closely in new merchandise and acquisitions will probably proceed rising gross sales and earnings for a few years.

Shareholders ought to proceed to profit from PepsiCo’s robust enterprise by means of annual dividend will increase. Few different firms within the client staples sector can match its dividend progress historical past. PepsiCo just lately achieved Dividend King standing in February 2022.

We consider that PepsiCo stays a beneficial holding for a dividend progress portfolio.

Moreover, the next Certain Dividend databases include essentially the most dependable dividend growers in our funding universe:

In case you’re searching for shares with distinctive dividend traits, take into account the next Certain Dividend databases:

The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: