Dividend Face-Off: PepsiCo versus Dr Pepper Snapple Group

Image sources: www.pepsico.com and www.drpeppersnapplegroup.com.

PEP DPSTraded: NYSE NYSE

Market Capitalization: $151.6 billion $16.6 billion

Trailing 12 Month Revenue: $63.1 billion $6.3 billion

Trailing 12 Mo. Net Income: $5.5 billion $764 million

Annual Profit Margin: 8.6% 12.2%

Forward PE Ratio: 21.5 20.5

5 Year Total Return: 78.9% 168.6%

Dividend Yield: 2.7% 2.4%

Key Facts:

Inferences (1)Pepsi Offers Relative Safety Due to Its Size.

PepsiCo’s market capitalization is more than nine times greater than Dr Pepper Snapple’s, and its revenue is ten times greater than its peer.

Inferences (2)Dr Pepper Snapple Is A Competitive Investment.

But Dr Pepper Snapple is more profitable, and -- important to those dividend investors who regularly re-invest their dividends -- its stock has performed twice as well as PepsiCo’s over a five-year period, on a total return basis.

DPSDr Pepper Snapple Group is a beverage company with no snack exposure.

Major brands: Dr Pepper, Canada Dry, Schweppes, Snapple, 7UP, A&W, Sunkist, Peñafiel.

Dr. Pepper Snapple is highly concentrated in the U.S. Last year, 89% of sales derived from the U.S., with the remainder from Canada and Mexico (8%), and the Caribbean (3%).

Image source: Dr Pepper Snapple Group.

PEPPepsiCo is a beverage giant which also owns the Frito-Lay snacking division.

Major brands: Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Lays, Doritos, Cheetos.

PepsiCo is a truly globalized concern, selling its products in over 200 countries. It tends to be more sensitive than Dr Pepper Snapple to the effects of foreign currency exchange on earnings.

Image source: PepsiCo, Inc.

PepsiCo has a tremendous track record when it comes to dividend payments. The organization has increased its dividend for 44 years running. Dr Pepper Snapple has increased its dividend for only the last 6 consecutive years.

As we saw on slide #1, PepsiCo’s dividend carries a yield of 2.7%, versus Dr Pepper Snapple’s yield of 2.4%.

But PepsiCo has the higher payout ratio (total dividend payments divided by net income). PepsiCo currently pays out nearly 60% of its earnings in dividends. By this yardstick, Dr Pepper Snapple has a slightly “safer” payout ratio, at 49.2%.

Longevity, Payout Ratio

It depends on what a dividend investor is seeking. For those who want the liquidity and stability of a world class brand portfolio, backed by decades of dividend increases, it’s hard to pass up PepsiCo.

For those willing to invest in a smaller, faster growing beverage company, with well regarded brands of its own, Dr Pepper Snapple deserves attention. Recently, it’s certainly been the better total return investment vehicle.

Suggestion: Buy them both.

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