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PepsiCo's (NASDAQ:PEP) Dividend Will Be Increased To $1.26

The board of PepsiCo, Inc. (NASDAQ:PEP) has announced that it will be paying its dividend of $1.26 on the 30th of June, an increased payment from last year's comparable dividend. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.

Check out our latest analysis for PepsiCo

PepsiCo's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the company was paying out 96% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

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Looking forward, earnings per share is forecast to rise by 79.2% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 59% which would be quite comfortable going to take the dividend forward.

historic-dividend
historic-dividend

PepsiCo Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $2.15 in 2013 to the most recent total annual payment of $5.06. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

There Isn't Much Room To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. PepsiCo has impressed us by growing EPS at 6.9% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

PepsiCo's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think PepsiCo will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, PepsiCo has 5 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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