How Innovation Drives PepsiCo

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The media is abuzz about Beverage Digest’s tweet concerning PepsiCo Inc.’s (NYSE: PEP) new “Stubborn Soda” lineup, which could include crazy carbonated soda flavors such as “black cherry with tarragon,” “pineapple cream” and “agave vanilla cream.” The new craft sodas will be include cane sugar instead of high fructose corn syrup.

Oddly, the news media is heralding this as a response to the change in consumer’s preference towards healthier beverages, when sugar comes with its own set of health hazards. This is actually a follow up to earlier craft soda launches of Caleb’s Kola and Mountain Dew Dewshine, also made with cane sugar.

Regardless of the alleged health benefits of the new craft sodas, PepsiCo understands that companies need to come up with new products to hold the interest of consumers. Its website is full of new product introductions designed to keep consumers intrigued enough to keep coming back and trying something new. No doubt, PepsiCo hopes that some of these new products will provide incremental growth as a whole.

As evidence that PepsiCo has not given up on the traditional carbonated sodas, last month it came out with a new Pepsi Limon flavored soda that is made with authentic lime juice. The company also introduced four new flavors to its energy drink lineup. This is a smart move, considering that energy brands had heavy volume gains in 2014. In April, snack and drink product introductions included two Cracker Jack’D snack mix flavors, a new Doritos Roulette chip for the U.S. market, a new Baja Blast Mountain Dew flavor and four new flavors to its Rold Gold Pretzels lineup.

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As a show of confidence in PepsiCo’s future, its board decided to raise its quarterly dividend 7% in May to $0.7025 per share. This represents the 43rd year of consecutive dividend increases. PepsiCo investors currently enjoy a respectable 2.9% dividend yield, which isn’t bad considering the company’s potential coming from innovation.

All of PepsiCo’s innovation and marketing has Wall Street analysts on an upbeat note as well. Thomson/First Call has the mean target price pegged at $106.15, representing a roughly 14% advance from its current price.

Note: William Bias owns shares of PepsiCo.