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The Comfort Of Sugar: Considering Coke, Pepsi, Dr Pepper

 June 04, 2012 09:43 AM

(By Kevin Donovan) Mike Bloomberg, the most interesting mayor in the world, to soft drink lovers: "Stay thirsty, my friends."

Call it one more creepy encroachment of the nanny state or a progressive stride for a slimmer state, but New York City's proposed ban on serving supersized sugary sodas in restaurants has the beverage world abuzz with something more than caffeine.

But a ban on the gargantuan quenchers would likely have more effect on the likes of McDonald's and other fast food outlets that capture fat profit margins on soft drinks.

Indeed, if you insist on owing equities in a market officially put on recession alert in the wake of the dismal May jobs data released Friday, dividend-paying icons Coca-Cola (KO),  PepsiCo (PEP), and Dr Pepper Snapple (DPS) are well-positioned consumer names with less sensitivity to market moves than the stocks of companies more reliant on discretionary income.

[Related -Coca-Cola Company (KO) Dividend Stock Analysis]

Thus far, Coca-Cola has been the lone company to speak out against the proposed ban on restaurant sales of supersized drinks.

"The people of New York City are much smarter than the New York City Health Department believes," the Atlanta-based company said in a statement. "New Yorkers expect and deserve better than this. They can make their own choices about the beverages they purchase. We hope New Yorkers loudly voice their disapproval about this arbitrary mandate."

[Related -Pepsico, Inc. (PEP) Dividend Stock Analysis]

Reasons to own these shares are: growing dividends, low betas, and reasonable valuations.  From the biggest to smallest market capitalization, here's the lowdown at a glance.


Dividend Yield


Forward PE









Dr Pepper Snapple




Source: Finviz

What's more, Coca-Cola and PepsiCo have increased dividends for 50 and 40 consecutive years, respectively.  Dr Pepper Snapple has increased its dividend each year since it became a standalone company three years ago.

And there's room for dividend growth.  Payout ratios stand at about 50% for Coca-Cola and PepsiCo and 47% for Dr Pepper Snapple.

First-quarter results were unspectacular but steady at these beverage companies.

Coca-Cola reported $0.89 in earnings per share, compared with $0.82 in the year-ago quarter. Beverage volume was up 5% worldwide. 

PepsiCo, which sells salty snacks as well as beverages, posted EPS of $0.71, even with the prior year. Volume was up 4%.

Dr Pepper Snapple reported $0.48 in EPS vs. $0.50 in the year-ago quarter.  Sales volume decreased 1%.

Meanwhile, share price performance has been similarly steady.  Coca-Cola has been the best performer.  At $73.09, shares are up 13.88% in the past year and 5.23% year to date.  PepsiCo is at $67.51, up 0.30% in the past year and 3.38% year to date.  Dr Pepper Snapple trades at $40.63, up 3.10% in the past year and 3.83% year to date.

One could do worse. 

Full disclosure: As we write this, a can of soda from one of these companies rests on the coaster.  We surmise that other consumers are as addicted as us.  Reliable refreshment is nothing to disdain in this desert of a stock market.



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