PepsiCo's (NASDAQ:PEP) Dividend Will Be Increased To $1.42

PepsiCo, Inc.'s (NASDAQ:PEP) dividend will be increasing from last year's payment of the same period to $1.42 on 30th of June. This takes the dividend yield to 4.3%, which shareholders will be pleased with.

Our free stock report includes 3 warning signs investors should be aware of before investing in PepsiCo. Read for free now.

PepsiCo's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, PepsiCo was paying out quite a large proportion of both earnings and cash flow, with the dividend being 107% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 29.2%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 67% which would be quite comfortable going to take the dividend forward.

See our latest analysis for PepsiCo

PepsiCo Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $2.62 in 2015, and the most recent fiscal year payment was $5.69. This means that it has been growing its distributions at 8.1% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

PepsiCo Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. PepsiCo has impressed us by growing EPS at 5.7% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

The Dividend Could Prove To Be Unreliable

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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for PepsiCo that you should be aware of before investing. Is PepsiCo not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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