My long term financial goal is possibly generate enough passive income each year to cover my basic living expenses. One aspect of my strategy is to invest in companies that pay an above-average dividend that is constantly growing. This should allow me to reach my passive income goal faster.
I’m always looking for something new dividend stocks to help me reach my goal. That search recently led me to buy shares PepsiCo (NASDAQ: PEP). Here’s why I think the beverage and snack giant can help me quench my thirst for more passive income.
PepsiCo currently offers a dividend yield of about 3.8 percent. That’s well above its historical average of 2.5% to 3% over the past decade. Its yield is currently more than three times higher than S&P 500 index dividend yield (1.2%). That high yield payout will allow me to generate more income of every dollar I invest in shares, which will certainly help satisfy my thirst for passive income.
The beverage and snack giant has a phenomenal dividend payout record. It has paid consecutive quarterly dividends since 1965, while last year marked the 52nd consecutive year of annual dividend growth, keeping it in the elite group Royal dividends. Since 2010, PepsiCo has increased its dividend at a compound annual rate of 7.7%, including last year by 7%.
The company can easily afford its high dividend yield. It generates strong cash flow and has an excellent balance sheet. It is expected to pay a $7.2 billion dividend and buy back $1 billion of its own stock last year. Meanwhile, it ended the third quarter with about $8 billion of cash on its balance sheet and a low gearing ratio, which supports its A+/A1 bond rating.
PepsiCo expects to continue to grow its revenues and earnings at solid rates in the coming years, which should support future dividend increase. The company was on track last year to deliver low-single-digit organic revenue growth and at least an 8% increase in its earnings per share. This is in line with the company’s long-term goals of organic revenue growth of 4% to 6% and high single-digit earnings per share growth.
The company has a great opportunity for continued expansion. The global beverage and convenience food opportunity is estimated to be more than $1.2 trillion. With less than $100 billion in revenue, PepsiCo has a long growth path ahead of it.
PepsiCo invests heavily in the development of its business. It has expanded its range of energy drinks and water. It also cut back on sugar and sodium to make its drinks and snacks healthier, adding whole grains and baked goods. Besides, that added more packaging choices for portion control and launched bold new flavors. The company also continued to work on expanding international sales.
