Pepsi: A Rock-Solid Dividend Aristocrat With A Good Chart

Mar. 02, 2022 9:38 PM ETPepsiCo, Inc. (PEP)11 Comments11 Likes
Hale Stewart profile picture
Hale Stewart
10.59K Followers

Summary

  • The macroeconomic backdrop is positive.
  • The company's financials are rock-solid.
  • The stock is in an uptrend.

Close up soda pour

Jonathan Knowles/DigitalVision via Getty Images

Starting in January, the markets started to realign risk due to the upcoming Fed rate hikes. The situation in Ukraine has contributed to the realignment towards larger, more mature, and safe companies. Pepsi (NASDAQ:PEP) is a consumer defensive company that fits into this strategy.

Investment thesis: With a strong macro-economic backdrop and solid fundamentals, Pepsi (PEP) is a buy.

Pepsi (PEP) is one of the world's largest beverage and snack companies.

PepsiCo, Inc. operates as a food and beverage company worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region. It offers branded dips, cheese-flavored snacks, and tortillas, as well as corn, potato, and tortilla chips; cereals, rice, pasta, mixes and syrups, granola bars, grits, oatmeal, rice cakes, simply granola, and side dishes; beverage concentrates, fountain syrups, and finished goods; ready-to-drink tea, coffee, and juices; and dairy products.

It's the second-largest non-alcoholic beverage company according to the Finviz.com website.

The economic backdrop for this company is still positive.

Total establishment jobs and unemployment rate

Total establishment jobs and unemployment rate (FRED)

The total number of establishment jobs (left) continues to grow which has led to a declining and very low unemployment rate (right).

Total income less transfer payments and Y/Y percentage change in wages

Total income less transfer payments and Y/Y percentage change in wages (FRED)

A strong jobs market causes rising wages. Total income less transfer payments (left) is at high levels while the Y/Y percentage change in hourly earnings (right) is growing at a brisk clip.

General merchandise sales

General merchandise sales (FRED)

As a result, sales at general merchandise stores (where Pepsi products are sold) are at a 5-year high.

The company's financials couldn't be better:

General merchandise sales

Pepsi total revenue (Seeking Alpha)

After stalling revenue growth between 2012-2017, sales picked up and have been growing for the last few years.

Pepsi gross, operating, and net margins

Pepsi gross, operating, and net margins (Seeking Alpha)

The company's gross, operating, and net margins have been very consistent. This is a sign of what I call a "self-running" company, which means that the internal operations are very well-managed and stable.

Pepsi cash flow and dividend analysis

Pepsi cash flow and dividend analysis (Seeking Alpha)

Pepsi is a dividend aristocrat -- it has raised its dividend in each of the last 49 years (it is currently yielding 2.65%). That means it's going to understandably attract a large number of safety-oriented investors who will want to know that the dividend payment is safe.

The second row shows the amount of cash the company has remaining after paying for investments. That number has been positive in all but one of the last 10 years. The fifth row shows the amount of cash left after the company pays for dividends. That number has been positive in seven of the last ten years. But remember --- Pepsi has vast financing capabilities and could draw on them if needed.

However, the bottom line subtracts dividend and interest payments from EBIT. That number has been positive in all of the last ten years.

In other words, the dividend is safe.

Finally, let's take a look at the charts.

Pepsi weekly and daily charts

Pepsi weekly and daily charts (Stockcharts)

Both the weekly (left) and daily (right) charts show the stock is in an uptrend. Prices peaked in January and have been trending lower since.

Pepsi has rock-solid fundamentals and a good chart. It's also a consumer defensive issue with a 49-year history of raising its dividend. This one's a buy.

This article was written by

Hale Stewart profile picture
10.59K Followers
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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