Pepsico, Inc. (NYSE: PEP) has just come out and announced it was going to hike its dividend by some 6%.  The $1.70 annualized dividend will now be $1.80 on an annual basis that is paid out quarterly.  Normally, these announcements are a blip on the radar, but this could actually signal that it has the capital to pay more for that proposed Pepsi Bottling Group Inc. (NYSE: PBG) acquisition.  It may even have an ultimate impact on PepsiAmericas Inc. (NYSE: PAS).

It was just on Monday that the board of Pepsi Bottling Group Inc. sent a letter to Indra Nooyi, CEO & Chairman of PepsiCo.  Pepsi still owns 33% of PBG after a 1999 spin-off.  It said that the $29.50 for the remaining stake of about $6 billion was opportunistic timing at an inadequate value with understated synergies.

Again, normally we would not give this much thought.  But PBG shares closed at $31.76 today. It also has actually not traded under the $30.00 mark at all on any closing share price-basis since the offer was made by Pepsico.

Raising a dividend is a signal that business is going to hold up.  PBG already gave earnings and raised its full-year guidance for earnings per share and operating free cash flow and management said the terms essentially are at a zero-premium based upon that new guidance.

We do not know if PepsiCo is going to make another offer or not.  We know they are essentially the only “owner of ease” as their businesses are interlocked and because of the 33% stake.  But the higher dividend signals that Pepsico can probably afford to pony up more cash for PBG.

Ditto for PepsiAmericas Inc. (NYSE: PAS).

Jon C. Ogg