PepsiCo Inc: A Solid Choice for Income Investors?

PepsiCo Inc. PEP is a favorite among Wall Street analysts, and data shows that sophisticated investors are buying the stock in large quantities. As of June 2024, institutional investors own 73.9% of PepsiCo, indicating experts’ confidence in the stock. However, income investors should carefully consider whether this stock is a good investment.

PepsiCo is a dividend king that has consistently hiked quarterly dividends for the last 52 years. The stock currently offers a trailing yield of 3.27%, which is better than the industry average of 2.47%. However, its payout ratio of 82% is higher than the industry average of 66.39%, suggesting potential underinvestment in growth, which may hurt its dividend sustainability.

Despite this concern, PepsiCo’s strong balance sheet can likely sustain payments, even in slow growth periods. As of March 2024, the company had a debt-to-equity ratio of 2.41, compared to the industry average of 0.8. While this ratio is quite high, it is manageable given the company’s $228 billion market cap and ability to raise capital to boost its balance sheet. Moreover, PepsiCo’s net debt-to-EBITDA ratio of 2.1 and interest coverage ratio of 15.8 times demonstrate its ability to sustain its debt.

PepsiCo Inc. could be a great income stock, but its price remains vulnerable to the decisions of institutional investors. Therefore, investors looking for a stable income stream and growth should approach the stock with caution.

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