PepsiCo: A Well-Balanced Beverage and Snack Business With 50 Years of Dividend Growth

The very first Pepsi soda was created back in 1898 by a pharmacist in North Carolina inspired by the recent success of Coca-Cola.  The drink was quick to gain in popularity, and in 1902, the Pepsi-Cola Company was officially incorporated.

Throughout the 20th century, the company spent a lot of money marketing its products and making acquisitions to create a portfolio of well-known beverage brands. In 1965, the firm expanded into the snack business through its merger with Frito-Lay.

Today, PepsiCo is a global leader in its categories with over $70 billion in annual revenue, split almost equally between snacks and drinks. The company has a strong portfolio of products, of which more than 20 generate over a billion dollars in sales each year.

Snack and beverage companies need to cultivate strong brands to drive high sales volumes of their low-priced products.  Repeat business from consumers generates the steady cash flow streams that investors expect from this defensive sector.

Retailers, in turn, need to keep shelves stocked with strong brands that customers expect to find.  For snack and beverage manufacturers with in-demand products, like Pepsi, the more robust and diverse their portfolios, the more leverage they have when negotiating pricing, shelf space, and in-store promotions.

Better shelf space helps keep products in more convenient locations to satisfy impulsive and time-sensitive consumers while also reinforcing brand recognition.

Pepsi enjoys some of the best positioning on shelves since its vast portfolio has no equal.  The company is the largest contributor to many retailers' total snack and beverage sales, further strengthening its negotiating power and ability to cross-promote complementary products such as Doritos and Mountain Dew.

That said, Pepsi has had to confront shifting consumer tastes to stay relevant with retailers and end consumers.  For example, sales of carbonated beverages in the U.S. have declined for years as customers have become more health-conscious.
 
Pepsi has countered soft drink volume declines with price increases while also reducing its dependence on soda by adding healthier drinks (e.g. Aquafina and bubly sparkling water) and snacks (e.g. Smartfood and Bare Snacks) to its portfolio.

Coupled with acquisitions and a large amount of investment in marketing and internal product development, Pepsi has kept its business growing and defended its high market share.

Despite American consumer trends shifting to healthier alternatives, it's likely ten years from now more people worldwide will be consuming Pepsi products as the global middle-class population expands, and with it, an increased appetite for salt and sugar.

Pepsi will likely continue growing its portfolio of healthier alternatives to satisfy global consumers, and the company's A+ credit rating provides additional financial flexibility to adapt as needed while also maintaining its commitment to the dividend.

Pepsi has grown its dividend every year since 1971 and appears positioned to extend that streak for years to come.