Monday, March 2, 2009
(Cont'd from above)...

Jim:       Pepsi is a good defensive staple… staple meaning that you might want it… not staple to your head… like Mel Gibson in “Lethal Weapon II”… solid revenue growth, fairly stable earnings, a strong balance sheet… an attractive, not to mention Marathon Man, like 3.6% dividend yield… Pepsi is the kind of company that unlike say a bank, actually gets cheaper as its share price goes lower… which is why I can recommend buying it in this environment… we want this stock, we also want its dividend… every quarter Pepsi pays a 42.5 cent a share dividend… the next payout comes at the end of this month, March 31st… so when do you need to buy PEP to qualify for that payment… and when is it too late… can you wait until March 31st… is this something that you can take advantage of and get ahead of… the answer is no, you cannot wait… and yes, gloriously you can still obtain it.

You don’t need to land on Pepsi… you don’t need a yellow card from the middle of the Monopoly board… you don’t need to pass go to get it… you just need to listen to my directions tonight, and take action tomorrow… to collect that dividend, the dividend payout… you simply need to buy Pepsi, the stock, not the drink… before the close of trading tomorrow… that is right, before the close of trading Tuesday, March 3rd… how do I know that… because when Pepsi’s board of directors declared that dividend last month… they gave us the record date of March 6th… do you need to know what the record date is to understand dividend investing… absolutely not… because record date that is total Wall Street jibberish… the only thing that you need to understand is the must own date, that is a term coined by colleague Dave Pelletier, who runs the terrific Dividend Stock Advisor Newsletter at TheStreet.com, where I am chairman… you will never hear about the must own date anywhere else… it is almost like there is a vast conspiracy to keep you in the dark about the whole process… so you need to rely on your brokers to find this out… but I am telling you that what you need to know is the must own date… that is the only date that counts when you are dividend investing… it is the last day that you have to buy the stock when you care about the dividend...

So when you hear about the record date… you just need to know how that relates to the must own date… here is the rule… anytime you know the record date, just subtract… subtract 3 days, and you have the must own date… that is how we know that you need to buy Pepsi before tomorrow’s close, if you want that 42 ½ cent dividend… now, sometimes you will see the x date instead of the record date… in that case you just subtract one day to get the must own date… I have got to get you to understand this… Pepsi’s x date is Wednesday March 4th… at no point will no one other than me or Dave “Fishbowl” Pelletier, use the term must own date… but now you know how to sift thru the mumble jumble and turn it into something meaningful that helps you collect your money.

How long do you have to hold onto Pepsi… after you qualify at tomorrow’s close in order to still collect the payout… the way that dividends work you can sell it at anytime beginning the morning of March 5th, the next day… and still receive your 42 1.2 cent per share dividend payment on March 31st… it will still hit your run… still hit your account… the stock will probably open 42 ½ cents lower Wednesday morning, to reflect the fact that new buyers no longer have any right to that dividend… so you can’t pull any kind of snatch and grab… you want to buy Pepsi… then buy Pepsi regardless of the dividend… this one is worth hanging onto for more than just measly dividend payments… the company is on track to raise its dividend in May for the 32nd consecutive dividend year… boy, we like companies that can raise their dividend… and it is a model of dividend safety… Pepsi can comfortably cover its dividend payment 2.2 times over its expected 2009’s earnings of $3.67.… so let’s just say that they don’t make that .67 cents, okay…you are still going to be okay… for just $3... this is a dividend stock with dual side airbags, and anti-lock brakes… maximum protection… it is the exact opposite of say PNC Financial, or International Paper, both of which had to cut their dividends today because they can’t afford to run low on capital by paying it out to you.

What about Pepsi’s four wheel drive growth… this is not a market where I want to recommend a lot of stocks, as you know… our regular viewers know that I am recommending very, very few stocks… and I am recommending sell of thousands of stocks… but Pepsi is one of the leading international beverage and snack companies in the world… it is a staple… and I still believe that that is one of the places to look for stocks right now… only if you buy in stages though on the way down… because believe me this is a stock that can still go lower… it doesn’t seem to matter that the company has managed to pose 3 consecutive quarters of organic growth… despite the miserable economy… Pepsi’s international business is a real bright spot… in the companies most recent quarter international volumes grew 11%… 14% volume growth from beverages… and 8% from snacks… the company has a big overseas initiative in China… where it expects several new plants in the next few years… and you know we think the Chinese Communists are the last best and certainly the rapacious capitalists left in the world… Pepsi even posted 17% volume growth in Russia, and there economy has been pancaked… yeah, so pancaked that I bet that the Russians are longing for the good old days from the first 5 year plan… something that we are about to experience here under the leadership of comrades Obama and Pelosi… and the Pollack Burrow… did he say Pollack Burrow, I think he meant Congress.

The real challenges for Pepsi are its North American beverage business and the strong dollar… these are the reasons that the stock has taken a 36% hit from its high of $75... North American beverage volumes did fall… this is a big weakness… 6%… but Pepsi likely drew down inventories and the bottlers have recently said that they think that the US beverage business has bottomed… so that is probably the worst quarter that we are going to see from the beverage division… currency… Pepsi expects to take a 8% hit to 2009 earnings, 30 cents a share… hey, that is a lot I know… the news is out… the dollar keeps getting stronger… but people have reduced their expectations… any weakness in the dollar would lead to a nice upside surprise… by the way, Pepsi is much less exposed to the dollar than Coke… although, KO just gave you a nice dividend boost last week… to show you how strong the sector of the market is… I call Pepsi a second half story… in the second half of the year the company should see margins driven by easier comparisons… with last year because of cheaper cans and bottling… okay, look this is plastic, that price is coming down… cheaper gasoline to take products to stores, remember they have those trucks all over the place, and that costs them something… cheaper ingredients like corn for Fritos… along with incremental revenue growth from their $1.2B reinvest program… strong companies can afford to invest in their brands during a down turn… so they can come out stronger than before… that is exactly what Pepsi did… don’t forget, advertising costs are coming way down because a lot of the big automotive companies can’t afford to advertise anymore… one more thing, the price increases… I think they stick… the company is a real cash machine… it is like an ATM… excluding the $1B that Pepsi will contribute to its pension fund this year… it should generate $7B in cash flow from operations in 2009... compared to roughly the same amount last year… the company is trading at about 13 times earnings, 20% premium to the market… that means the stock is expensive… but remember Pepsi has got steady earnings, real sales growth, strong cash flow, great management, that is Indra Nooyi, Pepsi’s terrific CEO… and over the last 2 years Pepsi has traded an average premium of 30% to the market… so the stock is currently trading at a little bit of a discount… can Pepsi end up selling at 10, or even 9, or 8 times earnings… of course, all stocks are going down… but the dividend yield could protect the downside… not insulate it… but at least make it so that Pepsi is more resilient than many other stocks.

Here is the bottom line…

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