Investors are getting worried, and perhaps it is time they should. The market gains, which are now gone, this year have been driven almost exclusively by a few very high-priced momentum stocks. The lion’s share of the quality companies have traded sideways to down, and energy stocks have taken a horrific beating, most now trading at bear market sell-off levels.
A new report from Jefferies focuses on what they call the Sustainable Income stocks. The Jefferies team ran a screen that looks for five specific characteristics. Five stocks fit the qualifications listed below, and four had the best yields.
- Market capitalization greater than $1 billion.
- Dividend yield at least 2.5%. The current S&P yield is at 2%.
- At least 5% dividend growth last year, and an estimated 5% for this year.
- Dividend payouts of at least 100%
- Solid upside to the Jefferies price target.
This top consumer staples stock fits the bill. PepsiCo Inc. (NYSE: PEP), a global snack and beverage company, manufactures and markets salty and convenient snacks, carbonated and noncarbonated beverages, and foods. Divisions were restated in 2008 to include Pepsi Americas Foods (including Frito-Lay), Pepsi Americas Beverages and Pepsi International. Key foreign sales exposures include the United Kingdom, Mexico, India and China. Brands include Pepsi Cola, Mountain Dew, Gatorade, Tropicana, Frito-Lay, Quaker, SoBe and Aquafina.
The company recently announced a partnership agreement with Starbucks to market, sell and distribute ready-to-drink Starbucks coffee and energy beverages in Latin America. PepsiCo will use its expansive distribution network and local expertise in the region to sell and distribute the Starbucks beverages. These beverages will be available in 2016, across the Caribbean, Chile, Colombia, Costa Rica, Guatemala, Mexico, Panama, Peru, Puerto Rico and Uruguay.
PepsiCo investors are paid a very solid 2.91% dividend. The Jefferies price target is $110, with the Thomson/First Call consensus target at $105.67. The stock closed Thursday at $97.98.