Recent Buy // PEP

Just when you thought August was going to slowly fade out…BAM! Mr. Market decides to correct itself and many stocks that were overvalued were reduced to fair value. But the stocks that were already undervalued became an absolute steal. I didn’t plan on making another purchase until the first or second of week of September; However, I don’t know about you but, when the market gives you a discount, you take it!

I purchased 10 shares of Pepsico, Inc. (PEP) on 8/25/15 for $92.58 per share.

recentbuy_pep

Overview

PepsiCo Inc. is a worldwide food and beverage company. Started in 1898 when Caleb Bradham, a pharmacist and industrialist from North Carolina, created the recipe for the syrup soft drink, they’ve since merged and acquired brands in the food/snack space. In their Frito-Lay North America segment, they own the Lays, Doritos, Cheetos, Ruffles, Tostitos, Fritos, and Santitas branded chips. The Quaker Foods North America segment sells Quaker oatmeal, grits, rice cakes, oat squares, natural granola, Aunt Jemima mixes and syrups, Quaker chewy granola bars,  Cap N Crunch and Life cereals, and Rice-A-Roni side dishes. Both segments also operate in Europe, Asia, Middle East and Africa.

PEP’s beverage reach is just as powerful, if not more. With well-recognized brands like Pepsi, Diet Pepsi, Mountain Dew, Diet Mountain Dew, Gatorade, Aquafina, 7UP, Tropicana Pure Premium, and Sierra Mist it’s pretty hard to walk into a store in any part of the world not find a PepsiCo beverage product. That sort of ubiquity makes this stock very attractive.

Quantitative

  • Revenue has grown by an average of 4.11% over the last 10 years.
  • EPS is 4.33 and has increased by an average of 8% over the last 10 years.
  • Current dividend yield is 3.04% and pays a dividend of $2.81 per share. PEP has been increasing dividends for 42 years and the payout ratio is currently 60.6%.
  • Debt/Equity ratio is currently at 1.42.

Valuation

  • The P/E ratio is currently 20.70 which, while slightly above its 5 yr average, is reasonable.
  • I did pay a bit of a premium. Based on the Dividend Discount Model, I should have waited to purchase at a price closer to $89. However, due to Mr.Market rebounding pretty quickly, I decided to take the plunge anyway and put my capital to work.
  • Morningstar Valuation: $97
  • S&P Capital IQ Valuation: $80

Conclusion

There are risks associated with PEP. As consumers become more and more health conscious, companies like Pepsico, Coca-Cola, McDonald’s, etc. need to innovate and not rely so heavily on their non-healthy products. PepsiCo has been accomplishing this by selling bottled waters, teas and juices. They also have diversity in the food segment with healthier options like rice cakes, oatmeal and chewy granola bars. The brand recognition coupled with the diverse products in pretty much any country in the world means this company deserves a core spot in my dividend portfolio.

This purchase adds $28.10 to my annual dividend based on the current $0.70 quarterly dividend.

Full disclosure: Long PEP

What do you think of PEP? Think there’s more opportunities for growth in this mammoth company?

Thanks for reading.

Images: Death to the Stock Photo with graphics added by One Woman’s Worth.

 

Advertisements

Author: One Woman's Worth

Born with a dollar and a dream. Hoping to double both in my lifetime.

4 thoughts on “Recent Buy // PEP”

    1. Both Coca-Cola and Pepsi are well-known/well-respected brands and have a lot of offer an investor. For me, however, limited capital forced me to choose between the two- and I chose PEP! The diversification with their growing snack segment is what really sets PepsiCo apart.

      Thanks for stopping by!
      -O

      1. Very true. Their snack segment is also why I like them. I watched a Pepsi documentary on CNBC once. Great story covering the CEO and company.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s