Saturday, September 21, 2013

PepsiCo Dividend Stock Analysis

PepsiCo, Inc. operates as a food and beverage company worldwide. The company’s PepsiCo Americas Foods division offers Lay’s and Ruffles potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese flavored snacks, branded dips, and Fritos corn and Santitas tortilla chips; Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Quaker grits, Cap’n Crunch cereal, Life cereal, and Quaker rice cakes; Rice-A-Roni, Near East, and Pasta Roni side dishes; Quaker-brand cereals and snacks; and snack foods under Marias Gamesa, Cheetos, Doritos, Ruffles, Emperador, Saladitas, Elma Chips, Rosquinhas Mabel, Sabritas, and Tostitos brands. Its PepsiCo Americas Beverages division provides beverage concentrates, fountain syrups, and finished goods under Pepsi, Mountain Dew,Gatorade,Diet Pepsi, Aquafina, 7UP, Diet

Mountain Dew, Tropicana Pure Premium, Sierra Mist, and Mirinda brands; and ready-to-drink tea and coffee products. The company’s PepsiCo Europe division offers snacks under Lay’s, Walkers, Doritos, Cheetos, and Ruffles brands, as well as Quaker-brand cereals and snacks; beverage concentrates, fountain syrups, and finished goods under Pepsi, Pepsi Max, 7UP, Diet Pepsi, and Tropicana brands; ready-to-drink tea products; and dairy products under Domik v Derevne, Chudo, and Agusha brands. Its PepsiCo Asia, Middle East, and Africa division provides snack foods under Lay’s, Chipsy, Kurkure, Doritos, Cheetos, and Smith’s brands; cereals and snacks under the Quaker name; beverage concentrates, fountain syrups, and finished goods under Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina, and Tropicana brands; and ready-to-drink tea products. The company serves wholesale and foodservice distributors, grocery and convenience stores, mass merchandisers, membership stores, and authorized independent bottlers through direct-store-delivery systems, customer warehouses, and distributor networks. PepsiCo, Inc. was founded in 1898 and is headquartered in Purchase, New York.


Current Yield and Dividend Growth

PepsiCo currently pays a dividend of $0.5675 per quarter for a $2.27 annual dividend. At the close of market on Friday, September 20th PEP’s price per share was $81.74. This gives the stock a current dividend yield of 2.78%. Normally I look for a dividend yield of at least 3%, so I wouldn`t be satisfied with this dividend yield from PEP.

In 2003, PepsiCo paid an annual dividend amount of $0.63 per share.  The dividend trend has been up each year as it now pays $2.27 annually per share. This gives PEP a 10 year annual compound dividend growth rate of 13.68%. PepsiCo has increased its dividend for more than four decades. PepsiCo´s dividend growth rate has been good on last 5 and 10 years, but has go down on last years. With over 5% growth rate it's still okay.

EPS Growth

PepsiCo's EPS has grown an average of 7.8% over the past 10 years, 2.83% in the past five years. The past three years, EPS has grown by only 1.31%, and in the past year growth has been negative, -2.73%. PepsiCo's EPS of development in recent years does not make me very convinced at the moment. Analyst estimates for 5 years earnigs growth rate per annum are 8.3% ( If that will occur, investors will be pleased.

Net Income

PepsiCo's net income has increased by an average of 6.43% over the past 10 years, 2.83% in the past five years. Net income, is however clearly decreased in recent years and have also been negative in 2012 (-4.11%). Net income trend looks similar to the EPS trend. Net income development in recent years also makes me a little suspicious that PepsiCo is a good investment at the moment.

Revenue Growth

PepsiCo's revenue has increased 10.06% over the past 10 years, 14.85% in the last 5 years. Also, in the last 3 years, profits have grown comfortable 14.85%, only last year, revenue fell by -1.52%. Good revenue growth rate is unfortunately not yet reflected in net income improvement.

Outstanding Shares

PepsiCo`s amount of shares has go down nicely, except on year 2010 those increased, but after that has continue go down. That I like, because less shares outstanding, my shares are giving me a larger portion of the earnings.

Payout Ratio

PepsiCo's dividend payout ratio has been in the past 10 years by about 50%. This means that PepsiCo will distribute about half of the profits to shareholders, and put about half of the new investment, as well as increases the value of shares through share repurchases. It suits me very well.


PepsiCo's ROE has been around 30% over the past 10 years, which seems to be very good.

Current Ratio

Current ratio measures the company's ability to meet short-term obligations. PepsiCo has current ratio 1.10 at the end of 2012. This means that the funds will be able to cover 110% of current liability obligations. I usually like the current ratio is greater than 1, so PepsiCo looks good in this case.

Net Profit to long term debt

This number tells me how many years it will take to pay off the current long term debt of the company by using all net profit into it. I want this ratio to be less than 5, because the company is able to pay for all long-term debt from less than five years and on my opinion then company don´t have too much debt. PepsiCo`s long term debt has been under 5 times net profit on last 10 years, even it has grown up fast on last years. In the last 10-year average is 1.75, last year it was 3.49.


To found out share fair value I mainly use six different methods. (

Average P/E Ratio

PepsiCo`s current P/E are 19.1, which are pretty close to it`s historical 5 years average high (19.20) and also more near 10 years average high (21.09) as 10 years average low (16.51).  By calculating using estimated EPS 4.35 for year 2013 and the average 5-year low P/E ratio shares fair value will be $ 63.08. Using the 10-year average low P/E ratio, fair value will be $71.84.   

Average Dividend Yield

PepsiCo`s current annual dividend are $2.18. At the close of market on Friday, September 20th PEP’s price per share was $81.74. This gives the stock a current dividend yield of 2.78%. Average 5 years high dividend yields has been 3.5% and average 10 years high dividend yields has been 2.75%. Those dividend yields gives share fair value $63.08 for 5 and $71.84 for 10 years.

Average P/S Ratio

PepsiCo`s current P/S ratio are 1.89 with revenue estimates for year 2013 (66.98B). Average 5 years low P/S ratio are 1.57 and average 10 years low P/S ratio are 2.06. By calculating using estimated revenue for year 2013 and the average 5 years low P/S ratio fair value will be $68.07. Using the 10 years average low P/S ratio, fair value will be $89.12.

Discounted Cash Flow

Analyst estimates for 5 years earnings growth rate per annum are 8.3%. I will use on my calculation 66% of that, which are 5.48%. Then I assume that continue growth after 5 years will be 5%. I use discount rate 10% and EPS $4.25. That will give me share fair value $69.46.

Dividend Discount Model

PepsiCo`s current annual dividend are $2.18. I assume that PepsiCo will be able to grow dividends for the next 5 years at the lowest of the 1, 3, 5, or 10 year growth rates or 15%. In this case that would be 5.06%. Then I assume that after 5 years grow rate will be 5%. To calculate the value I used a discount rate of 10%. That will give me share fair value $45.90.

Future Price

PepsiCo has EPS 4.25 (ttm). When I calculate PepsiCo`s future price with analyst estimate for 5 years EPS growth and using low P/E ratio last 5 years, I came for price $91.79.


PepsiCo are sure a great company and I would like to have some shares of it in my portfolio. Based on my analysis, I think PepsiCo are ​​currently overvalued, and I am not prepared at this time to invest in it. If the price would fall down to near $70, then I might be interested on it. Net income and EPS, should also increase in the future. If PepsiCo is able to turn them back to good growth, the situation will be completely different.

Disclosure:  I do not own any shares of PEP.

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