Guest Post On Pepsi From Ben Reynolds At Sure Dividend

This is a guest post analyzing PepsiCo is from Ben Reynolds at Sure Dividend.  Sure Dividend is focused on high quality dividend growth stocks suitable for long-term investors.

PepsiCo is one of the most easily recognized companies in the U.S.  The company’s flagship Pepsi soda brand can be found in virtually every gas station, corner store, and grocery store in the U.S.  In addition to the Pepsi brand, PepsiCo also own the following drink brands:  Gatorade, Mountain Dew, Lipton, Tropicana, and 7 Up (among others – more on that later).

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How Alfred Cowles III Took The Fear Out Of Investing

In the 1930s, a youngish man named Alfred Cowles III founded the Cowles Commission for Economic Research. One of Mr. Cowles’ first projects involved back-testing stock market performance from 1871 through the Great Depression, paying special attention to the effect of reinvested dividends during this time frame.

This was a purely academic exercise—back then, dividends weren’t something that you reinvested because the technology and affordability didn’t exist for it to make sense. It wasn’t a thing. If you owned $40,000 worth of AT&T, you collected your $800 in the mail every three months and used the dividends to help you support your lifestyle. Wanted to make a house payment and take care of the utilities? That’s what the AT&T dividends were for. Wanted to reinvest? You’d have to make a special buy order to purchase 100 shares. If AT&T was trading at $30 per share, you’d have to come up with the other $2,200 on your own. And you’d have to spend a couple hundred dollars on the new buy order. It was just…a different world.

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Coca-Cola Raises Its Dividend 8.2% But Gives 11.59% Income Growth If You Reinvest

Last week, Coca-Cola announced that the quarterly dividend was going to increase from $0.305 per share to $0.33 per share. It is that announcement every February, dating back to 1963, that explains why I find this company so appealing. Truth to be told, as nice as the income increases are, it is really the consistent earnings power represented by that dividend increases that catches my attention.

I want to be sure I separate the roots from the leaves: The real reason that Coca-Cola is such an attractive investment is that there are 500 nonalcoholic beverages across 210 countries earning $0.275 profits on every $1 paid by the customer. You buy a case of Coca-Cola for $7, the company goes and makes $1.92 in profit that can be paid out to shareholders, used to repurchase stock, or make new bottling/drink acquisitions. It’s a little bit more complicated than that—I used the mean product offering profit margins—so that Coca-Cola itself would be more profitable than, say, something like Diet Fanta (does that even exist?) but the attractiveness of the business model is clear.

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