PepsiCo’s product portfolio includes several well-known brands not just in the US but all throughout the world. Gatorade sports drink, Pepsi-Cola, and Lay’s potato chips are among these brands. With this in mind, it’s no wonder that PepsiCo’s products are consumed over one billion times every day in over 200 nations and territories worldwide, and PepsiCo stock (NASDAQ:PEP). Well, let’s see.
PepsiCo reported particularly encouraging results for the third quarter ending September 3 earlier this month. During the quarter, the corporation generated $22 billion in net sales, an 8.8% increase over the previous year. What drove the food and beverage behemoth’s phenomenal net sales rise in the third quarter?
Market Analysis of Pepsico Stock
PepsiCo’s pricing increases and approach to maximize income per liter or a kilo of the product paid well in the third quarter. These initiatives resulted in a 17% increase in net revenue during the third quarter. Because of how ingrained customers are in their habits of eating PepsiCo goods, this only resulted in a 1% decrease in overall volume in the quarter.
And the only reason volume fell for the quarter was a 10% drop in European sales owing to the company’s decision to cease operations in Russia. This also explains why PepsiCo’s exit from the area resulted in a 4% drop in net sales during the quarter. Finally, a strong US dollar caused a 3% foreign currency translation disadvantage in the third quarter. These facts demonstrate how the company’s organic sales growth was 16% while its actual net revenue increase was 8.8% for the quarter.
During the quarter, PepsiCo produced $1.97 in non-GAAP (adjusted) diluted profits per share (EPS), a 10.1% increase year over year. The company’s good cost management pushed its non-GAAP net margin up 14 basis points to 12.4% in the quarter, which is how adjusted diluted EPS growth exceeded net sales growth.
A dividend that shows no indications of waning
PepsiCo’s stock (NASDAQ:PEP) dividend yield of 2.7% is much higher than the S&P 500 index’s yield of 1.8%. Furthermore, the firm looks to be well-positioned to continue its 50-year streak of dividend increases.
This is because PepsiCo’s dividend payment ratio is expected to be approximately 67% for the current fiscal year. This allows enough money for the corporation to develop its operations while still paying off debt. Along with the 8.2% annual adjusted diluted EPS growth expected by analysts over the next five years, this is why I anticipate at least 7% annual dividend growth from PepsiCo.
PepsiCo Stock: The premium price is well-deserved.
PepsiCo is a fantastic company. As you might expect, this isn’t cheap for investors looking to buy PepsiCo stock (NASDAQ;PEP) in the company.
PepsiCo’s forward P/E ratio of 24 is comparable to the non-alcoholic beverage industry’s average multiple of 23.6. Since PepsiCo is one of the few Dividend Kings in the industry, that’s a reasonable premium to pay for the stock. This strengthens the case for dividend growth investors that PepsiCo stock (NASDAQ:PEP) is a buy hiding in plain sight.
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Author Okoro Chinedu 
