- Like all companies involved with carbonated soft drinks, Dr Pepper Snapple is seeing stagnant sales in this area.
- 10 calorie alternatives, teas, juices and seltzer water are helping to make up the difference.
- With a healthy and growing dividend, and a management actively buying back stock, Dr Pepper Snapple offers a small, albeit steady and secure return.
Dr Pepper Snapple Group (NYSE:DPS) is an interesting company. Anecdotally, I prefer the taste of their flagship and namesake product, Dr. Pepper, more than I do those from both The Coca-Cola Company (NYSE:KO) and PepsiCo (NYSE:PEP). DPS however, is lacking what is the real growth driver of my favorite company of the trio, Pepsi-a faster growing snacks division and international presence. True, DPS has Mott's Apple Sauce and exposure to Latin America, for example, but they are minuscule pieces of the company, albeit well growing ones. The Latin American beverages segment increased 20% in 2013, but its $61 million is only a fraction of the total $1.364 billion in segment operating profit for the company.
Net sales were basically flat for the company in 2013. The annual figure came in at $5.997 billion, just above the $5.995 billion of 2012. EPS managed to squeak out a 3% gain. Challenges facing carbonated soft drinks are well known. Consumers are looking for healthier choices. There is the threat of special taxes being imposed on the soft drinks by politicians. Fortunately, DPS has some other brands that are picking up the slack.
Juices and teas offered from DPS are attracting more consumers. Mott's grew volume 3% in 2013, while Snapple grew 2%. Canada Dry's seltzer water is a real superstar for the company as well, as its 0 calories are very attractive to consumers, and the products taste great to boot. Growth was 13% for this group in 2013, and 2014 will see the addition of a new flavor-Peach Mango.
2013 also saw the release of low-calorie versions the company's core 4 flavors (7UP, Sunkist, Canada Dry and A&W) in hopes of luring back lapsed consumers. It has been a success and is a major reason the core 4 as a group outperformed the CSD category as a whole by 3% in 2013. Because of items such as this, DPS will be able to stave off declines in CSDs, but there is nothing in their immediate future which points to any sort of robust growth.
One area DPS matches well with both Coke and Pepsi is its current dividend yield and its dividend growth rate. Currently at 2.82%, it is just shy of the two competitors, who have yields which sit at 3%. Dividend growth is decidedly on the side of DPS, as they have raised quarterly payouts from $.15 in 2009 to the present $.41. Growth for both Pepsi and Coke over the same period is only in the mid 40% range. In addition to the $302 million returned to shareholders in 2013 in the form of dividends, DPS also had $400 million in share buybacks.
Together with the incrementally growing EPS, the dividend combines to offer shareholders a not very substantial, but still a very safe and secure return. DPS has a business model which is very simple, and is sustainable. This makes it ideal for more passive investors, for whom safety and income are paramount.
Disclosure: I am long PEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.