Dividend And Growth Plays In The Beverage Sector

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Includes: DEO, DNKN, KO, SBUX
by: Matt Schilling

Jose Cuervo may be getting a new home if London based beverage maker Diageo (DEO) has its way. They are currently trying to acquire the Jose Cuervo brand from its family-owned roots and have Goldman Sachs and HSBC signed on to help with the acquisition. Analysts have estimated the Cuervo brand to be valued at roughly $3 billion. Who says you can't get things done with a little help from your friends?

Currently DEO yields 2.2% and trades with a P/E ratio of 23.4. It's a pretty affordable long term investment and the dividend is very conservative. If the Cuervo deal does go through, DEO's earnings and growth within the sector will certainly be enhanced.

In other beverage news, everything might not be running on just Dunkin' anymore. The Dunkin Donuts and Baskin-Robbins (DNKN) restaurant group will soon become partners with Coca-Cola (KO). I see the global brand recognition and how positive this is for both companies' bottom lines, but the real question is how much impact it will have in the upcoming quarters.

KO currently yields 2.8% and trades with a P/E ratio of 20, making it not only one the best long term investments, but one of the benchmarks of the Dow 30. DNKN currently yields 2.0% and trades at a much higher P/E of 86.7. The 86.7 P/E ratio is quite high, however it shouldn't scare investors away, especially since it's time Coca-Cola has some influence on making the donuts.

Coca-Cola and Diageo weren't the only two beverage makers in the news recently; Starbucks (SBUX) is planning what some are calling an intimate expansion into China. It's only intimate in the sense they're expanding in much smaller cities, but it's very aggressive to say the least. By 2015, Starbucks projects their current 500 locations throughout China to more than triple, which would give them roughly 1500 boutique coffee shops in the Asian country.

For the dividend investor, SBUX currently yields 1.2% which may seem low by the lights of some readers, however continued growth in such places as Asia and the Pacific Rim have allowed multiple analysts raise price targets. Most recently SBUX price target was raised by Baird to $65/share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.