PepsiCo, Inc.: 3 Reasons to Be Bullish on PEP Stock
PEP Stock Should Be Considered a Stock to Own
PepsiCo, Inc. (NYSE:PEP) stock is a company that continues to reward its shareholders.
Shares of PEP stock are up 68% over the past five years. As an investor, you may be wondering if there is a possibility of more upside ahead, or if the good news is built into the current price.
Let me explain three reasons why I am bullish on PEP stock.
Returning Money to Shareholders
PEP stock is trading at $105.34, which is yielding 2.86%. The current dividend is paid on a quarterly basis to investors. The annual earnings are $4.80, from which an annual dividend of $3.01 is paid to investors. This would represent a dividend payout ratio of approximately 62%. With a conservation payout ratio, there exists the chance of future dividend hikes.
A future dividend hike wouldn’t be the first, given they have occurred for Pepsi stock for the past 44 years, both at time when the economy is growing or in a recession. As a income investor, this is what should be expected from a dividend-paying stock.
Other than the dividend, PepsiCo has used surplus cash for share repurchases amounting to $7.0 billion. Buybacks help increase a shareholder’s new worth, as well as their total ownership of the company; fewer shares available mean the remaining ones are worth more. (Source: “PepsiCo Reports Fourth Quarter and Full-Year 2015 Results,” PepsiCo, Inc., February 11, 2016.)
Fundamentals of PEP Stock
Over the past five years, Pepsi’s cash and short-term investments have nearly tripled. Meanwhile, the short and current long-term debt has decreased by more than a third. In other words, the company has become leaner.
The price-to-sales ratio is what is best used to compare Pepsi to its peers. This ratio provides information about how the current trading price of the stock is compared to the sales that are generated over a period of a year. For PEP stock, the price-to-sales ratio is 2.4 times, which is cheaper than the industry average of 3.5 times.
For patient, long-term investors, the volatility is another aspect to consider. Compared to the index, PEP stock’s price movement is less than the overall index. This is important when an investor wants to protect their invested capital.
Pepsi operates in more than 200 countries around the world. This is great from an investor’s point of view, since if one country sees a slump in sales, another could see growth and pick up the slack. Another benefit of PepsiCo being a global company is that it generates revenue in many different currencies. Since PepsiCo is based in the U.S., foreign currencies are compared to U.S. dollars.
There will be times the foreign currencies could see a capital gain that is reflected in the bottom line of PEP stock. And should it be an unfavorable time to make a capital gain on foreign exchange, the money could simply be parked in a bank account to earn some interest in the meantime. But being based in the U.S., PepsiCo’s savings accounts are not offering much return in the form of interest rates. There are other countries that offer a much higher interest rate on cash that is parked in a savings account, such as India’s over five percent.
Final Thoughts on PEP Stock
PEP should be considered due to the global diversification and the company’s efforts to reward shareholders. The balance sheet has been getting stronger, which is a long-term benefit.
A shareholder-friendly company that pays out increasing dividends, the possibility of more dividend hikes and share repurchases exists for PEP stock.
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners
Sign up to receive our FREE Income Investors newsletter along with our special offers and get our FREE report:
5 Dividend Stocks to Own Forever
This is an entirely free service. No credit card required. You can opt-out at anytime.
We hate spam as much as you do.