Pepsico (NYSE:PEP) is a true dividend aristocrat having increased its dividend for the last 44 years. Its latest increase means that the company’s annualized dividend is currently $3.01 which equates to a 7% increase in the dividend payout. If you are a long term holder of Pepsi stock, I am not advocating selling Pepsi at present but it may be a good idea to start redistributing the dividends to other stocks which have had their valuations more beaten up in recent times. Pepsi, for example, looks expensive with its present earnings multiple of 27+ which is well above its 5 year average of 19.6. So why should the stock deserve such a high valuation considering the fact that the company’s 2015 revenue is a good $3.5 billion shy of 2011 numbers?

Well, Pepsi’s fourth quarter earnings definitely helped the matter as adjusted earnings matched analysts expectations. The beverage company expects to achieve organic revenue growth of 4% in 2016 through more acquisitions in the health and wellness areas, elevated market spend and more investment being ploughed back into its brands. There is no doubt the company has the balance sheet to carry out these initiatives in 2016. Pepsi has over $12 billion of cash and cash equivalents on its balance sheet at present while long-term debt spiked to almost $30 billion in 2015. Therefore the question becomes “Can Pepsi continue to invest through the cycle and come out on the other side with sustained top line growth once more ?” It is certainly possible but there may be ramifications that dividend investors should know.

Firstly, the dollar is going to be crucial for Pepsi’s fortunes in 2016. Almost 45% of the company’s organic revenues come from its international markets so the strength of the dollar in 2016 is going to have a major impact on the company’s top line. What I find overly bullish is that the company is guiding flat revenues in 2016 (4% organic growth being offset by -4% currency headwinds). Why do I find this overly optimistic? Well, just look at the company’s earnings numbers last quarter. Granted that the dollar was exceptionally strong in the fourth quarter of 2015 but organic growth was affected by a whopping 8%! If the dollar stays anywhere near these levels, Pepsi will be doomed to another year of falling revenues in dollar terms which means the company will be forced to lower its guidance. Furthermore, when you combine falling revenues with elevated spend, that’s when dividend growth rates and buybacks get squeezed even if the share price remains elevated right throughout the cycle.