Grow your income portfolio with PepsiCo stock

Dividend Kings like consumer staples PepsiCo NASDAQ:PEP they are not often stocks that provide much PEP to a portfolio. However, they can deliver substantial, market-beating returns when the stars align. As for PepsiCo, this blue-chip, industry-leading, undervalued, high-yielding consumer-focused company is in the midst of a leveraged rebound, as shown in the charts. The charts show a solid trend signal that could soon take the market to a new all-time high.

This outlook is borne out by analysts who have revised their ratings enough over the past six months to raise the stock’s consensus rating from Hold to Buy and keep the price target stable. The two most recent revisions, issued just a few weeks before the first-quarter earnings release, include two upward revisions to the price target and the new high target among analysts. This is $209, a new all-time high once reached.

PepsiCo had a strong quarter despite headwinds

PepsiCo’s first quarter was solid, given last year’s tough results, inflation and consumer issues and the recall of Quaker products that included cereals, bars and snacks. The impact of the recall is estimated at nearly 100 basis points of reported revenues, enough to double the reported outperformance over analysts’ consensus estimates. PepsiCo reported net revenue of $18.25 billion, a gain of 2.3%, beating forecasts by 80 basis points. Volume decreased by 0.5%, but is offset by price and mix.

Quaker is the segment’s only sweet spot, down -24% from last year, but tough races are also in play. Latin America is the strongest segment, with GAAP growth of 16% and organic growth of 8%, excluding the impact of currency translation. Latin America is now the third largest segment in terms of sales. APAC grew 11%, Europe 10% and AMESA 7%. The PepsiCo NA and Frito Lay NA domestic segments grew 1% and 2%, highlighting the effectiveness of PepsiCo’s diversification and international growth strategy.

Margin news is another strong point. The company expanded net income margin by 35 basis points to take advantage of profit growth. GAAP EPS of $1.48 grew 6% more than doubling revenue growth, while adjusted earnings of $1.61 increased 7%. Adjusted earnings beat the consensus estimate reported by Marketbeat by $0.09 or 590 basis points and led the company to reiterate its guidance. PepsiCo reaffirmed prospects for organic growth of 4% or better versus consensus of 3.5% and for EPS growth of at least 8%.

PepsiCo’s capital returns are healthy

PepsiCo’s dividend is near the high end of its historical range, with shares down from highs, but the yield may not last long. The payment is worth almost 3% at current prices and is sound, safe and reliable. Not only is PepsiCo a Dividend King with a track record of increases, but its financial metrics are solid. First quarter operations included a sequential cash draw, but operations over the past year have resulted in a near doubling of cash, a reduction in total liabilities, and a 2.9% increase in equity capital. Better results are expected this year.

The dividend payout is around 65%, which is high for the safety, but supported by earnings growth. The expected distribution payment for 2024 is expected to increase 7% starting in June, below the minimum earnings growth of 8%, and this does not include the impact of share repurchases. PepsiCo does not repurchase aggressively but sufficiently to offset stock-based compensation; the count fell an average of 0.3% year over year at the end of the first quarter.

PepsiCo stable after solid results

PepsiCo’s price action is stable and trending higher following its first quarter results and guidance update. The move is in line with recent action, suggesting a trend-following signal is in play. The market shows a bottom at $160, which is above the previous low and the long-term uptrend line that has been in play for fifteen years. The MACD and stochastic indicators confirm the signal, showing solid buy signals and have ample room to move higher. Assuming the market follows this signal, PEP stock should advance in the coming quarters and could reach all-time highs again by the end of the year.

Before you consider PepsiCo, you’ll want to hear this.

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