PepsiCo(NASDAQ: PEP) is blue-blooded royalty among blue chip stocks. I mean that almost literally, as the veteran drinks and snacks purveyor is a Dividend King, one of a very small group of S&P 500 index component stocks that has declared a dividend raise every year for a minimum of 50 years running.
In many ways, PepsiCo is the model of an income stock, with its dividend being a crucial part of the company's appeal. Let's pick apart the payout a bit to determine whether the shares are a worthwhile investment.
A fizzy dividend play
These days, PepsiCo doles out a quarterly dividend of just under $1.36 per share. Annualized, that figure is $5.42 per share, which produces a dividend yield of almost 3.2% on the stock's recent closing price. That's high enough to keep the stock attractive, as the average yield of S&P 500 index stocks is less than half that percentage, at a shade under 1.3%.
PepsiCo needs a handsome yield because of that slow upward movement in the fundamentals -- no one's ever going to mistake it for a growth stock.
Its just-released third-quarter earnings report revealed that net revenue dipped marginally on a year-over-year basis (to $23.3 billion), while its "core" (non-GAAP, or adjusted) net income crawled slightly upward to $2.31 per share from the year-ago $2.25. The top line was a bit below the consensus analyst estimate, while profitability slightly exceeded projections. Looking forward, PepsiCo added $0.01 per share to its full-year 2024 earnings guidance for a new figure of $8.15.
Don't invest in it for the thrills
All in all, it was yet another unexciting quarter, but it's safe to say that few investors buy PepsiCo for excitement. They purchase and hold it because of that constantly increasing dividend, which pays out a far better-than-average yield. While it might not be a hot growth prospect, PepsiCo knows how to keep rivers of cash flowing into the business while consistently posting solid profits. It's a good buy candidate, and an ideal income stock for any portfolio.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
