PepsiCo Dividend Distribution Looks Promising In The Long-Term
In the last 15 years, the value of PepsiCo has risen from 1.01 US dollars in 2005, to 2.53 US dollars in 2014. That represents the annual compound rate of 9.6%, but the bottom line is lacking in pace. EPS grew from 2.66 US dollars to 4.63 US dollars in the same period, amounting to 5.7% CARG. The percentage of net income that was paid out as dividend rose to 57%.
This is not a high result, and with the earnings predicted to stay at the same level next year, can be considered good news. If PepsiCo planes to extend its record of increasing dividend, which now stretches for 43 years straight, it will have to increase the payout ratio even more.
The sustainability of the dividend can be evaluated by an objective payout ratio, but in order to make a better evaluation of the long term return prospect of PepsiCo stock value, we ought to inspect the company’s balance sheet.
A level of debt that can be amendable is a good indicator. There are two levels of payment before yours, if you hold a common share. Only once the company takes advantage of the bond coupons, and preferred share dividends, is the time that your dividends are distributed. If one want to be sure that the company can deliver on common shares, even in relatively unsuccessful periods, he has to make enquires in this.
PepsiCo has reached a level of combined debt, both long and short term, which could be a possible alarm. The balance sheet shows a concerning 28.9 billion US dollars in debt. The ratio between debt and the level of equity is above the industry’s average, standing at 1.4, but it is not that concerning for such a well-organized company. It is a good forecast to say that the dividend is easily sustainable, even in long term prospects, with EBIT (earnings before interest and taxes) reaching around 11.73 times the interest expense.