One of RB's top 100 favorite stories involves Herman Lay, the founder of Lay potato chips, who had a delivery route in Nashville but needed to buy gas on credit during the Great Depression. The Johnson's who operated a gas stations across from Belmont University extended him credit and later Lay gave them the opportunity to buy stock in his company for 8 grand, which set off a debate between Mr. and Mrs. Johnson, since that was all the money that they had saved for their retirement. They went ahead and the company later become Frito-Lay which was bought by Pepsi in 1965. Belmont University recently received a 10 million dollar gift from the Johnsons' estate. News and Media: Belmont Receives $10 Million Donation from Johnson Estate
That gift did not originate from pumping gas. That is just inspirational.
I have always liked the Frito-Lay products, but coca cola is my soft drink of choice. There is a certain comfort level that I have with both Pepsico and Coca Cola which has never existed in my psyche for technology companies. They are survivors. Their finances are solid and the dividend stream is as reliable as any American corporation, a factor brought home when a company like GE cuts its dividend and KO gave its shareholders a raise. This is important to an old geezer, maybe not so important to the young turks and wizards.
So when I initiate a position in Pepsi or a Proctor & Gamble, I am not trying to shoot the lights out. I am hoping simply to improve my odds of a 10% annualized yield with the dividend by making my purchase at a favorable price for a long term hold, recognizing that I have no idea whether PEP will fall further. The current price is near the five year low for PEP. I have to think in terms of my odds for 10% annually over a 3 to 7 year time span with a purchase at less than $50, picking my exit point to achieve that objective based on future developments. Excluding Black Swan type of events which can not be predicted or even anticipated in most cases, I view my odds of accomplishing that objective to be good. I also view that I am ahead in a way by buying at over $20 less than the my sales price last September, and at a price below my last purchase. Those are two factors supporting re-entry now.
I was not comfortable holding my shares when the volatility index for the S & P 500 moved decisively into what the model now calls a Bear Phase 2 pattern in September 2008, marked by a decisive break of the 20 to 30 range movement with occasional spikes into the 30s.
This purchase was funded partially by the proceeds from the Disney sale and the cash flow that had built up from dividends and interest since 2/28. More of those funds are available for investing and proceeds from short term bond sales may also become available over the next several weeks.
I still take a negative view of the Pepsi's offer to purchase the two bottlers. I view that as a sign of weakness in Pepsi's U.S. beverage operation, which is just my opinion, and the analysts mostly disagree with that assessment. It still can have positive ramifications over the long term provided Pepsi does not pay too much for them. Pepsi Bottling recently rejected PEP's offer.
This buy was also near the last one for the customized ETF for world consumer staple stocks that I started to buy in early March. These stocks include two drug companies, Sanofi and Novartis, and consumer staple companies including Nestle, Heinz, General Mills, Pepsico, Coca Cola, Kroger, Sysco, Campbell Soup, Proctor & Gamble, and Unilever, all recently initiated positions, along with Walgreens added in the 4th quarter of 2008 with cash flow.
After the close PEP raised its dividend 6% to 45 cents. This is view as important to us old folks.
Although I am already familiar with the company and its products, having followed it for decades, I still read the most current analyst reports available to me including the ones from S & P and Morningstar. I also reviewed again the recent news and the last earnings report which I had already read. I read it again.
The current consensus forecast for 2010 is around $4. If that number is close, then I am paying a little over 12 times forward earnings for a quality company.
The volatility index for the DJIA was the first one to close under 30 since the cataclysmic event in September. VXD Stock Charts
LB views it as the most stable of the volatility indexes for the major stock indexes. More stability is a positive.
LB views it as the most stable of the volatility indexes for the major stock indexes. More stability is a positive.
Links to some recent prior discussions of Pepsico:
