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Wide-Moat Pepsi Shares Trading at a Refreshing Discount

Pepsi's 3% yield is among the most attractive in the beverage space.


Pepsi pays one of the more attractive dividends in the beverage space, with a yield around 3%. The company’s annual dividend has increased for more than 40 years in a row, and its payout ratio has averaged about 60% over the last decade, which has translated to high-single-digit dividend growth. We expect Pepsi’s commitment to returning cash to shareholders to continue over our forecast and anticipate an average payout ratio in the mid-60s over the next 10 years.

In our view, Pepsi’s wide moat should ensure the company continues to return excess cash to shareholders over the long term. The company has 22 brands in the beverage and snack categories that generate above $1 billion in annual sales, allowing it to form entrenched relationships with retailers that depend on leading brands to drive store traffic and inventory turnover. Pepsi’s substantial investments in advertising and research and development, which totaled nearly $5 billion or more than 7% of sales last year, should support these brands over time, and help the firm defend its share from competition.

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Sonia Vora does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.