Investors in search of a steady, reliable passive income stream should be familiar with the Dividend Kings - a title reserved for companies that have been paying and increasing dividends for at least 50 consecutive years. It's not just a cool title; it's a sign of a company's enduring competitive advantage, its knack for growing earnings over time, and its sharp financial management.
One such name is PepsiCo (PEP), the consumer goods giant with a massive footprint in the global snack and drink scene. Lately, it's been in the news - not for its impressive run of dividend hikes, but due to a disappointing quarterly earnings report. But is PEP's post-earnings pullback a golden opportunity to scoop up shares of this Dividend King while they're cheap? Here's a closer look at Wall Street is saying.
PepsiCo Stock Underperforms the Market
PepsiCo stock has lagged the broader market over the past year, down about 5% over the past 52 weeks. Likewise, PEP is down more than 2% so far in 2024, compared to a gain of 5.5% for the S&P 500 Index ($SPX).
The company's latest earnings report for Q4 2023, released on Feb. 9, didn't exactly inspire the bulls. They beat the Street by reporting adjusted EPS of $1.78, but revenue of $27.85 billion missed expectations. More troubling, PEP issued an organic revenue growth forecast of 4% for fiscal 2024, with 8% growth expected for EPS. Both figures fell short of analysts' expectations, and the stock dropped 3.5% in response to the soft guidance.
That said, the shares are now somewhat reasonably priced. PepsiCo trades at a forward price/earnings multiple of 20.58, compared to its five-year historical average of 24.53. Likewise, the price/sales multiple of 2.42 is lower than PEP's historical mean of 2.76.
Plus, the shares yield just over 3% at current levels, based on the quarterly dividend payment of $1.27. Backed by 51 years of consistent growth, a reasonable payout ratio of less than 65%, and PEP's robust cash position, there's no reason to think this rock-solid dividend won't keep growing in the years to come.
What's the Growth Outlook for PEP?
PepsiCo is also spreading its wings geographically. Over in the key market of India, they're planning to pump up their capacity by more than 25% with their bottling buddy Varun Beverages, which just reported robust volume growth in its latest quarter.
Back at home, analysts came to PEP's defense after the post-earnings slide. Citi upgraded the stock to “Buy,” and TD Cowen reiterated an “Outperform” rating. While Citi says the current challenges are fairly reflected in the stock's price, Cowen argued that “we have conviction in PEP's ability to navigate this dynamic due to the strength of its brands, packaging flexibility, and importance to retailers.”
Overall, PepsiCo stock has earned a “Moderate Buy” consensus rating from 17 analysts. Breaking it down, 9 analysts are all in with a “Strong Buy,” while 8 are playing it cool with a “Hold” rating. The average 12-month price target is $190.40, implying expected upside of 14.5% from Friday's close.
