Consumer Sector Ideas

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Pepsico - >>> 2 High-Yield Dividend Stocks to Buy Now


Motley Fool

By Manali Bhade

Mar 30, 2022


https://www.fool.com/investing/2022/03/30/2-high-yield-dividend-stocks-to-buy-now/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


KEY POINTS

Snack and beverage giant PepsiCo will soon enter the prestigious Dividend Kings list.

Solid business fundamentals and a robust balance sheet make Iron Mountain attractive.

Regular income streams can make it easier for retail investors to withstand the current market volatility.
The U.S. equity market has seen some rocky times in the past few months. According to the AAII Investor Sentiment Survey, investors think the direction of the stock market in the next six months could be unusually bearish, as it has been for the past 17 weeks.

However, many high-quality dividend stocks have managed to withstand the downward pressure even in such difficult times. These stocks generate regular income and are considered safe havens in times of heightened market volatility.

PepsiCo ( PEP 1.42% ) and Iron Mountain ( IRM 1.48% ) are two dividend stocks that are currently trading at or near their 52-week highs. Here are a few reasons investors might regret not buying these stocks now.

1. PepsiCo

Consumer staples giant PepsiCo is gearing up to become a Dividend King in 2022. In February, this global beverage and snacks company announced a 5% year-over-year hike in its quarterly dividend to just below $1.08 per share, payable on March 31. The company has a dividend yield of 2.63%.

PepsiCo's current dividend payout ratio is 77%, which although not low, is still manageable considering its inflation-proof and low-risk business. The company plans to return $7.7 billion to shareholders in fiscal 2022, made up of $6.2 billion in dividends and $1.5 billion in share repurchases.

NASDAQ: PEP
Pepsico, Inc.

Today's Change
(1.42%) $2.38
Current Price
$169.76

PepsiCo enjoys significant brand power, thanks to the worldwide popularity of Pepsi and other beverages such as Gatorade and Mountain Dew. The company's snacks business includes the chips brands Frito-Lay, Ruffles, and Doritos, and it also has a breakfast food division. Both non-beverage businesses were a solid hit during the pandemic and continue to be big revenue drivers even after the relaxation of social distancing regulations. In fiscal 2021 (ended Dec. 25), the company's revenue was up 12.9% year over year to $25.3 billion.

Like many other companies, PepsiCo has faced rising commodity costs. But it has managed to offset much of this by charging higher prices. In the fourth quarter, the company increased its overall pricing by seven percentage points while sales volume grew by four percentage points. Subsequently, it reported an operating profit of $11.16 billion in fiscal 2021, up 10.7% year over year.

Pepsico is guiding for 6% year-over-year organic revenue growth in fiscal 2022, which is at the higher end of its long-term range. The confidence of the company in its execution capabilities in current challenging times coupled with a solid dividend yield make this soon-to-be Dividend King an attractive bet in 2022
.

2. Iron Mountain

Iron Mountain is a global leader in records storage and information management services (paper storage) that is fast moving toward becoming a prominent digital storage player. The real estate investment trust (REIT) has a solid client base of more than 225,000 customers in 1,450 locations across 63 countries.

The company's operations take up around 95 million square feet of real estate, of which 25 million square feet is self-owned.

Iron Mountain Incorporated (IRM)

Today's Change
(1.48%) $0.82
Current Price
$56.23

Iron Mountain's legacy paper storage business continues to be a cash cow despite ongoing global digitization. The company earns the bulk of its revenue from contracted storage rental fees and can pass along some of the inflationary impacts in the form of increased pricing.

Its records management business has a solid 98% customer retention rate. In fiscal 2021, the company reported a 2.6% year-over-year jump in organic storage-rental revenue, driven by robust pricing and volume trends.

The company is positioning itself as a major data center player and has leased 49 megawatts in fiscal 2021, much higher than its target of 30 megawatts. Iron Mountain has a total data center capacity of more than 600 megawatts and can effectively cross-sell to its broad customer base, which includes around 95% of the Fortune 1000 companies.

The REIT pays a handsome dividend yield of 4.74%, with an adjusted funds from operations (AFFO) payout ratio in the mid-60s range at the end of fiscal 2021, within the company's long-term target. AFFO is a key metric used to assess the profitability of a REIT. Iron Mountain expects its future dividends to rise at the same pace as its AFFO per share.

The REIT also has a strong balance sheet with $2 billion of liquidity and net lease-adjusted leverage at a 5.4 multiple, lower than the 5.9 multiple of the J.P. Morgan ( JPM -0.74% ) REIT Composite. A robust business model coupled with a healthy balance sheet will ensure that dividend payouts are quite safe for several years to come.

Iron Mountain expects its AFFO to be in the range of $1.08 billion to $1.12 billion in fiscal 2022.

IRM PS Ratio (Forward) Chart

IRM PS ratio (forward). Data by YCharts.

The company is currently trading at a forward price-to-sales ratio that is far lower than those of other well-managed and profitable REITs such as American Tower, Innovative Industrial Properties, and Equinix. Buying shares of a highly profitable and high-yield REIT in these inflationary times is one strategy that can potentially pay handsome returns, considering its very reasonable valuation.

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