Consider Pepsi (PEP) After Dividend Increase and a Strong Outlook

PepsiCo (NYSE:PEP) extended its strong financial performance in FY2016, supported by its extensive global footprints, diversified product portfolio and innovative products. The company has beaten revenue and earnings estimates for the fourth quarter of fiscal 2016 by $10 million and $0.10 per share, respectively. In addition, its financials also improved significantly, when compared with the same period last year.

Its organic revenue increased 3.7% in the final quarter of fiscal 2016 over the prior year period, thanks to its continued investments in organic growth opportunities.

Organic revenue growth has always been considered as a key metric for valuing the success of any company. The organic growth shows the company’s potential to expand its sales through the internal process. Revenue resulting from acquisitions, mergers, and borrowing do not add towards organic sales.

“We concluded 2016 with another strong quarter of operating performance, capping off a successful year. We met or exceeded every financial goal we set for 2016, while delivering a good balance between revenue performance and productivity,” said Chair and CEO Indra Nooyi.

On the other hand, PEP has also supported its earnings growth through investments in higher margin areas and cost savings. Thus, its core earnings per share increased 15% in the final quarter of fiscal 2016, compared with the same period last year. Pepsi is a dependable stock for retirees and defensive investors, thanks to its potential to generate a sustainable growth in dividends.

The company announced a dividend growth of 7% for the first quarter of 2017, representing a 45th consecutive year of dividend growth. In Fiscal 2017, its total dividend payments are likely to stand in the range of $4.5 billion, while PEP expects about $10 billion in operating cash flow and $7 billion in free cash flow in 2017. Thus, the company’s dividends appear completely safe, as its free cash flows are likely to provide a complete cover to dividend payments.

The author has no position in the above mentioned companies.

Alexander is an analyst for who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.