The Motley Fool: PepsiCo is paying fizzy, snacky dividends
PepsiCo (Nasdaq: PEP) – a global beverage and snack giant with brands such as Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream – is looking like a promising investment these days. The company has struggled lately, but its second-quarter earnings report surprised the market, beating analyst expectations. While growth was modest, it showed the company moving in the right direction.
Better still, PepsiCo is a longtime dividend-paying stock – one that has increased its payouts for 54 consecutive years. Those payouts have been growing at a brisk pace, too: The total annual dividend was recently $5.49 per share, up from $4.02 in 2020 and $2.76 in 2015. The dividend yield was recently a hefty 4.1%, meaning that investors will get paid a significant sum while waiting for the company to more fully turn around.
The yield is on the steep side because shares have slumped 20% over the past year as PepsiCo faced near-term growth headwinds from tariffs and other factors. But over the long term, the company expects its capital investments to deliver 4% to 6% annual organic revenue growth and high-single-digit earnings-per-share growth. Additionally, PepsiCo has the financial flexibility to make strategic acquisitions as opportunities arise. For example, it recently completed the purchase of functional soda maker Poppi to accelerate the strategic transformation of its portfolio to healthier options.
Ask the Fool
Q. What’s going on if a company raises $10 billion when it goes public via an initial public offering (IPO) – when it’s valued much higher, say at $50 billion? Why wouldn’t the IPO raise $50 billion? – G.F., Canton, Ohio
A. In many, if not most, cases, a company will offer only a portion of its value to the public via an IPO. This is typically done to help early investors cash out some shares or because the company has plans for that money. The remainder of the shares will stay under the ownership and control of insiders.
If the company requires another cash infusion later, it can sell more shares on the market via a “secondary offering.” Companies can also change their number of shares over time by issuing more shares or by buying back shares.
Q. When and why do companies decide to pay dividends? – H.T., Walnut Creek, California
A. When companies are young and/or growing rapidly, they often need to spend all their earnings in order to grow. A company might use its earnings to pay down debt, build more factories, hire more workers, buy more advertising or acquire another company.
Over time, it may grow large and stable enough to have reliable excess earnings. At that point, management may decide to commit to paying shareholders a regular dividend. Most often, that will be in the form of a sum announced yearly and paid quarterly. Healthy and growing companies tend to increase their payouts over time, often annually. To see a list of promising stocks we’ve recommended, many of which pay dividends, try our “Stock Adviser” service at Fool.com/services.
My smartest investment
My smartest investment move happened before I started investing on my own: I joined an investment club comprising 10 other women from various backgrounds. The purpose of the club was to learn more about how to choose stocks. We had speakers come to talk to us, and we developed a spreadsheet that helped us see if stocks met our investment goals. We used Value Line reports to help us make good decisions. The money we invested in the club was our percentage of ownership in the club. The joining fee was $200, and the monthly contribution was $50, so it didn’t cost that much, but gave us money to invest. The big bonus was finding a great group of friends with similar interests. – N.W., via email
The Fool responds: Investment clubs have been around for many years and are a great way to learn about investing. If you balk at pooling your money with other people’s, here’s a handy alternative: Form or join a club that doesn’t require contributions of money. Without the joint investing aspect of the club, members can still learn together about investing and can study companies, making recommendations to each other. Then each member can go home and invest – or not invest – in each company on their own.
Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.