Update PepsiCo (PEP)

03/15/2010 12:00 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

On Monday, March 15, 2010, the board of directors at PepsiCo (PEP) announced that the company would raise its dividend by 7% to an annual $1.92 a share from the current $1.80. At the 11:30 price of $65.75 that comes to a yield of 2.9%. The company’s next quarterly dividend will be paid on June 30 to shareholders of record as of June 4.

The company also moved to return cash to shareholders by increasing its buyback of outstanding shares.

The board voted to authorize the repurchase of up to $15 billion in PepsiCo common stock through June 2013. A stock buyback has the effect of increasing earnings per share by decreasing the number of shares (the denominator) in that fraction. The buyback, if carried out to the full $15 billion authorized, would reduce the company’s shares by about 14.6%.

The increase in the annual dividend restores the yield to the 3% (or so) level of early February before the stock began its recent climb. PepsiCo shares were up 7.5% from February 11 through 11:30 on March 15.

As of March 15, I’m leaving my target price at $68 a share by June 2010.

Full disclosure: I do not own shares of PepsiCo in my personal portfolio.

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