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 gaggle of S&P 500 shares which have elevated their dividends for a minimum of 25 years, amongst different necessities.

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

You’ll be able to obtain your free listing of all 69 Dividend Aristocrats by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend shouldn’t be affiliated with S&P International in any manner. S&P International 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 traders higher perceive this ETF and the index upon which it’s based mostly. Not one of the data on this article or spreadsheet is official knowledge from S&P International. Seek the advice of S&P International for official data.

We evaluation all of the Dividend Aristocrats annually. Subsequent up, we are going to evaluation the meals and beverage big PepsiCo (PEP).

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

PepsiCo’s valuation is nicely beneath its historic common, and it continues to submit stable 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 shaped 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 world meals and beverage big with a market capitalization above $215 billion and roughly $92 billion in annual income.

Its enterprise is break up roughly 60-40 by way of 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 embrace 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 beneath 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 yr and was $0.02 higher than anticipated.

For the yr, income grew 0.4% to $91.9 billion whereas adjusted earnings-per-share of $8.16 in comparison with $7.62 in 2023. Forex change lowered 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 yr. 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 supplied an outlook for 2025 as nicely, with the corporate anticipating mid-single-digit development for adjusted earnings-per-share development.

Progress Prospects

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

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

Giant soda corporations 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 might be resonating extra strongly with altering client preferences.

As well as, PepsiCo has an enormous development 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 development charges.

Worldwide markets (significantly rising ones) have been a development 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 sturdy manufacturers and a world scale. In all, PepsiCo has ~20 particular person manufacturers that every accumulate a minimum of $1 billion in annual income. Robust manufacturers give PepsiCo optimum shelf area at retailers and pricing energy.

PepsiCo’s monetary energy additionally permits the corporate to put money into analysis and improvement and promoting to retain its aggressive benefits.

For instance, PepsiCo invests billions annually in analysis and improvement to innovate new merchandise and packaging designs. As well as, PepsiCo frequently spends greater than $2 billion annually on promoting to keep up market share and construct model fairness with customers.

PepsiCo’s aggressive benefits and robust 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 nicely through 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 possibly can see, PepsiCo’s earnings-per-share declined solely modestly in 2008. The corporate then elevated earnings by practically 20% in 2009, which could be very spectacular. Earnings continued to develop as soon as the recession ended.

The corporate reported sturdy development 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 growth might add 5.6% to yearly annual returns over the subsequent 5 years.

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

The mix of valuation modifications, earnings development, and dividends leads to whole anticipated returns of 14.6% per yr over the subsequent 5 years.

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

Given the full return potential and the corporate’s general high quality, we fee shares of PepsiCo as a purchase.

Remaining Ideas

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

Shareholders ought to proceed to profit from PepsiCo’s sturdy enterprise by way of annual dividend will increase. Few different corporations within the client staples sector can match its dividend development historical past. PepsiCo not too long ago achieved Dividend King standing in February 2022.

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

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

If you happen to’re on the lookout for shares with distinctive dividend traits, take into account the next Certain Dividend databases:

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