Lanny’s Recent Stock Purchase – Pepsico (PEP)

I just couldn’t sit on the sidelines on a certain company any longer.  I saw Bert purchase a massive amount and then the dividend community was scooping up share, after share, after share.  The market was still bumpy this past week and I decided to make a purchase in the earlier parts.  I didn’t have as much capital, as I’d like to, but I did have a free trade credit at my disposal, that was going to expire in a few months.  therefore, i decided to put my capital to use and buy an undervalued dividend growth stock for the portfolio!  From reading the title to this article, you can only take a wild guess on what that company is.  Read further on the details of my recent dividend stock purchase!

The Stock Purchase – Pepsico (PEP)

First, the last time I purchased this stock was 7 fricken years ago!  That was back when the company was yielding 3.2% and had a few less dividend increases under their belt.  However, they’ve been a dividend aristocrat for a LONG time.  This means they have increased that dividend for at least 25 straight years!  At this time of purchase, they were down 18% year to date and that yield was swelling, quite a bit.  Further, the other obvious enticing point is the brand recognition.  I am not talking about one product, I am talking about a list of brands that are massive!  Here are a few below:

  • Pepsi
  • Gatorade
  • Quaker
  • Tropicana
  • Naked
  • Frito-Lay
  • Aquafina
  • Tostitos
  • Brisk

Not only do I see many people using these brands, but heck – I do too.  Further, they were in my list of dividend stocks, when talking about if the stock market is truly undervalued or not article.  So we now know they were down a ton this year, in terms of stock price, they are a dividend aristocrat with globally-recognized brands, but one question remains.  How about their stock metrics?  Let’s place them through the dividend diplomat stock screener,

Dividend Diplomat Stock Metrics

1.) Price to Earnings (P/E) Ratio – One of my favorite metrics.  From reviewing analyst reports, for 2018, they expect (on average) earnings per share to be $5.70.  The price point of my purchase was $98.45 (I should have waited just another day or so, I know!(.  Therefore, the P/E ratio was 17.27.  Not incredible, I know, but not above the average stock market of the low-to-mid 20’s that the valuation is currently at.  Further, they haven’t been at this ratio for an excruciating long period of time.

2.) Dividend Yield – Pepsi currently pays $3.71 per year or $0.9275 per quarter.  At the time of purchase, the yield calculated out to be 3.77% (dividends divided by share price).  This is far above my average dividend yield in my portfolio.  This was a higher yield than my first time ever purchasing them, and they were far higher than their 2.80% 5-year average dividend yield.

3.) Dividend Growth Rate – Pepsi has been increasing that dividend for over 46 years!  I love that longevity and it is one of the big reasons why I made an investment in them.  Their 3 year average is over 7% and their 5 year average growth rate is around 8.5%.  A very solid growth rate, that I expect to stay in that 7-10% growth rate going forward, being very consistent.  See why the dividend growth rate is extremely powerful.

4.) Dividend Payout Ratio – As discussed in #3, this is important if PEP wants to continue to grow that dividend at a consistent clip.  The dividends paid per year amounts to $3.71.  From #1, their expected earnings for 2018 is $5.70.  The dividend payout ratio equates to 65% (3.71/5.70).  What does this mean to me?  This is right around that ceiling that we have of 60% in our stock screener.  Do they have room to continue to grow their dividend?  Yes.  Will the growth rate appear to be on the lower end of my scale?  Yes.  Conclusion, though, is that they’ve increased dividends for so long and the consistency has been there.  Not too worried about that, obviously.

To show proof of the purchase:

I purchased $787.60 worth at $98.45 per share for a total of 8 shares, with a $0.00 trading fee (love free trades).  This added $29.68 to my forward dividend income.  My position in Pepsico (PEP) is up to 36.3 shares, that produces almost $135 of dividends going forward.  Very excited on the additional purchase of PEP in my portfolio!

Pepsico (PEP) Stock purchase summary & conclusion

Anytime that you can add a dividend aristocrat when they drop in price, like this, to your portfolio – it’s always a good day.  What a massive company, that has brand loyalty from customers to business across the world!  I am looking forward to an increase in that quarterly dividend starting at the end of June.  Further, their dividend growth rate is solid and their recent increase to the dividend of 15% provides a strong sense of hope of where it could be going forward.

Now onto the readers, what do you think of this dividend stock purchase?  Do you like it?  Were you able to get them when they were trading in the $96 range?   Any other dividend aristocrat that you have been enjoying or have you enjoyed a different dividend growth stock?  I appreciate the feedback and insight you have on this investment decision!  Thank you again, everyone, good luck and happy investing!

-Lanny

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19 thoughts on “Lanny’s Recent Stock Purchase – Pepsico (PEP)

  1. Good pick based on the DD stock criteria!

    I also did a double-take when I saw the title; I thought: “Wait a second!? Didn’t Lanny just by PEP?”

    Overall, nice purchase – especially for the multiple brands that you mentioned all under one roof. – Mike

    • Mike –

      HAHA. Bert did it earlier, with a massive position, and it started hanging around the price range that looked appealing. It’s funny, I’ve owned the stock for so long and would always tell myself – “Damn, I wonder when I’ll ever be able to buy them again at the right price”. Well, that day came!

      -Lanny

  2. Congratulations Lanny, nice buy! I also initiated a position of 5 shares @ $97. Post about that is coming.

    ps. On your Dividend Yield metric you talk about Dominion instead of Pepsi, small copy/paste error I think 🙂

  3. Started building a position late last week myself. Fits the idea of buying an above average company, at a below average price, which on average works out well.

    • Boyd –

      Couldn’t agree more with your simplified breakdown. Not to mention, an above average yield and dividend growth rate, as well as the proven track record & brand loyalty!

      -Lanny

  4. Nice buy!

    I just love PEP at these prices! I believe this is one of the safest buys around, and I hope the sale continues a while so I can get some more.

    The only disturbing part is that I don´t really understand why the stock price has dropped so much. I guess PEP is considered safe and boring and therefore people sell it when interest rates are expected to rise. I however believe there is more growth in PEP than in many other consumer staples, and therefore the price shouldn´t fall this much.

    Cheers!
    /GI

    • GI –

      I agree. It’s hard to see the sheer sell off from them. Did they run out of flavor or what? It could be the interest rate environment or that there is information that people have, that we don’t. However, they are an aristocrat for a reason and have been around this long for another reason, right?

      -Lanny

    • MDD –

      What’s funny is that I also made a purchase for my older brother and guess what? He got it at an even better price than us. Oh well, we’ll be collecting dividends regardless!

      -Lanny

  5. PEP as with many other staples continue to fall. The question of where to put your money comes into play for sure with quality names like GIS, PEP, KMB, PG, CL, CLX and more looking a lot more attractive when compared to last year. Love the buy. Still on my potential buy list for May.

    • DH –

      I couldn’t agree more. It seems like PEP is hovering, now, around that $97 mark. They remain on my list for an additional purchase potentially, with eyes heavy on KMB, PG and GIS. GIS is hard to not keep looking at…

      -Lanny

  6. Lanny,

    I like it! PEP is on my shortlist of stocks to purchase, which would be a new position for me. I am loving these valuations in the consumer staple space. There have been many names in this space that I’ve wanted to own, but was not able to justify the valuation in recent years.

    PIV

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