Wednesday, May 02, 2007

PepsiCo Increases Dividend 25% And Provides Guidance For Future Payouts

Today, Pepsico (PEP) announced a 25% increase in its quarterly dividend to 37.5 cents per share versus 30 cents per share in the same quarter last year. The company noted in its press release that future dividend payments would equal 50% of prior year's earnings:
"The Company increased its dividend payout target to 50% of prior year's earnings, beginning with its May dividend declaration."
This type of announcement is one reason dividend growth investing is attractive. One doesn't need to be attracted to the stock for the income yield; but, the actions around the dividend will provide insight into the board's/management's views on future financial results. If the company begins lowering the dividend growth rate below estimated earnings for a particular year, there is a likelihood the company is seeing a slowing of earnings. Of course, the company could be doing other things with the cash, e.g., an acquisition.

In addition to the dividend increase, PEP announced an $8 billion increase in its stock buyback program. This is on top of the current $8.5 billion buy back program:
"PepsiCo also said it will buy back up to $8 billion in shares through mid-2010, after the current buyback program is complete. The current $8.5 billion authorization began in 2006 and has about $6 billion remaining.

PepsiCo expects about $4.3 billion in share buybacks in 2007, up from a previous forecast of $3.3 billion, and annual share buybacks of $4 billion to $5 billion over the next several years."

(click on table/chart for larger image)

PepsiCo dividend analysis, May 2, 2007

PepsiCo stock chart, May 2, 2007

No comments :