There are just about five dozen stocks in the “Dividend King” universe, which are companies that have raised their dividends for at least 50 years. Among them is beverage giant PepsiCo (PEP), which has increased its dividends for 54 years. This year, it raised its annual dividend by 4% to $5.92 per share, implying a dividend yield of over 4.2%.
While PepsiCo boasts a dividend yield that’s three times the S&P 500 Index ($SPX), the higher yield is primarily due to its underperforming stock. PEP stock is down 10% over the last five years and is currently trading near its 52-week lows. The contrast with Coca-Cola (KO) couldn’t be starker, and the stock is trading just about 5% below its 52-week highs. The divergent price action is reflected in the dividend yield, and KO’s yield is just about 2.4%. Let’s focus on PepsiCo and examine whether the stock is a buy, particularly for investors looking for high dividend stocks.
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Why Has PepsiCo Stock Been Falling?
On the macro level, the food industry is battling input cost inflation. Moreover, higher gas prices have lowered disposable incomes, and many lower- and middle-income families have been cutting down on their spending. On a more company-specific level, PepsiCo has been a story of two moving parts. Its North America operations have been weak while the international business has been quite resilient despite the macro headwinds from higher gas prices. In Q2, PepsiCo Foods North America (PFNA) reported an annual decline of 2% in organic sales, while PepsiCo Beverages North America (PBNA) reported a mere 1% growth, with both the numbers trailing Street estimates.
In his prepared remarks accompanying the Q2 earnings release, CEO Ramon Laguarta said, “Results were tempered in the quarter as U.S. food and beverage category performance moderated with consumer budgets tightening due to rising inflationary pressures.” In particular, sales at convenience and gas channels have been quite weak, largely because of higher gas prices taking a toll on the finances of many families. The road to recovery would be long, and CFO Steve Schmitt said in his prepared remarks, “Our North America business was softer than we anticipated in the second quarter, and we now expect a more gradual improvement in performance trends for the balance of this year.”
