Sunday, September 29, 2013

Dr Pepper Snapple Dividend Stock Analysis

Dr Pepper Snapple Group, Inc. operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. The company offers flavored carbonated soft drinks (CSDs) primarily comprising beverage concentrates and fountain syrups; and non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, and mixers. It also provides carbonated mineral water and bottled water. The company offers CSDs primarily under the brand names of Dr Pepper, Crush, Canada Dry, Sunkist soda, Schweppes, 7UP, A&W, RC Cola, Squirt, Peñafiel, Sun Drop, Diet Rite, Welch's, Country Time, Vernors, and the concentrate form of Hawaiian Punch; and NCBs under
the brand names of Snapple, Hawiian Punch, Mott’s, Clamato, Yoo-Hoo, Deja Blue, FIJI, AriZona, ReaLemon, Nantucket Nectars, Mr and Mrs T mixers, Mistic, and Rose’s. It sells its products to bottlers, distributors, and retailers. The company was incorporated in 2007 and is headquartered in Plano, Texas.


Current Yield and Dividend Growth

Dr Pepper currently pays a dividend of $0.38 per quarter for a $1.52 annual dividend. At the close of market on Friday, September 27th DPS’s price per share was $44.98. This gives the stock a current dividend yield of 3.38%. Normally I look for a dividend yield of at least 3%, so I will be satisfied with this dividend yield from DPS.

In 2010, Dr Pepper paid an annual dividend amount of $0.90 per share.  The dividend trend has been up each year as it now pays $1.52 annually per share. This gives DPS a 3 year annual compound dividend growth rate of 19.09%. Dr Pepper has increased its dividend for now 3 years.

EPS Growth

Dr Pepper's EPS has grown an average of 10.9% over the past 3 years. Analyst estimates for 5 years earnigs growth rate per annum are 7.53% ( If that will occur, investors will be pleased.

Net Income

Dr Pepper's net income has increased by an average of 4.82% over the past 5 years, 4.26% in the past three years and 3.8% in last year. Net income has grown up very slowly. Net income trend looks similar to the EPS trend. Net income development in last year also makes me a little suspicious that Dr Pepper is a good investment for the future.

Revenue Growth

Dr Pepper's revenue has increased 0.85% over the past 5 years. In the last 3 years, profits have grown 2.72%. Last year, revenue grow by 1.55%. Dr Pepper´s revenue growth rate has been also very slow in last 5 years.

Outstanding Shares

Dr Pepper`s amount of shares has go down nicely after year 2009. That I like, because less shares outstanding, my shares are giving me a larger portion of the earnings.

Payout Ratio

Dr Pepper's dividend payout ratio has been in the past 3 years between 41-49%. This means that Dr Pepper will distribute less than half of the profits to shareholders, and put more than half of the new investment, as well as increases the value of shares through share repurchases. With current dividend yield, it would be okay for me.


Dr Pepper's ROE has been between 17-27% over the past 4 years, which on my opinion are okay.

Current Ratio

Current ratio measures the company's ability to meet short-term obligations. Dr Pepper has current ratio 1.08 at the end of 2012. This means that the funds will be able to cover 108% of current liability obligations. I usually like the current ratio is greater than 1, so Dr Pepper looks okay in this case.

Net Profit to long term debt

This number tells me how many years it will take to pay off the current long term debt of the company by using all net profit into it. I want this ratio to be less than 5, because the company is able to pay for all long-term debt from less than five years and on my opinion then company don´t have too much debt. Dr Pepper`s long term debt has been under 5 times net profit on last 5 years, except at year 2009 it was 5.33. In the last 5-year average has been 4.09, last year it was 4.13.I think, that Dr Pepper´s long term debt should go more down, before I would invest on it.


To found out share fair value I mainly use six different methods. (

Average P/E Ratio

Dr Pepper`s current P/E are 14.8, which are more close to it`s historical 5 years average high (16.24). By calculating using estimated EPS 3.07 for year 2013 and the average 5-year low P/E ratio (11.33) shares fair value will be $34.78.    

Average Dividend Yield

Dr Pepper`s current annual dividend are $1.52. At the close of market on Friday, September 27th DPS’s price per share was $44.98. This gives the stock a current dividend yield of 3.38%. Average 5 years high dividend yields has been 3.1% That dividend yield gives share fair value $49.29.

Average P/S Ratio

Dr Pepper´s current P/S ratio are 1.46 with revenue estimates for year 2013 (6.08B). Average 5 years low P/S ratio are 1.13. By calculating using estimated revenue for year 2013 and the average 5 years low P/S ratio fair value will be $33.57.
Discounted Cash Flow
Analyst estimates for 5 years earnings growth rate per annum are 7.53%. I will use on my calculation 66% of that, which are 4.97%. Then I assume that continue growth after 5 years will be 3%. I use discount rate 10% and EPS $2.92. That will give me share fair value $46.72.

Discount Rates
SFV of Future EPS

Dividend Discount Model

Dr Pepper`s current annual dividend are $1.52. I assume that Dr Pepper will be able to grow dividends for the next 3 years as much as on last year or 15%. In this case that would be 12.4%. Then I assume that after 3 years grow rate will be 5%. To calculate the value I used a discount rate of 10%. That will give me share fair value $38.81.

Discount Rate
SFV of Future Dividends

Future Price

Dr Pepper has EPS $2.92 (ttm). When I calculate Dr Pepper`s future price with analyst estimate for 5 years EPS growth and using low P/E ratio last 5 years, I came for price $47.70.


Based on my analysis, I think Dr Pepper are ​​currently overvalued, and I am not prepared at this time to invest in it. Dr Pepper has also a fairly short history of dividend shares, at this time the dividend seems appealing, but I'm not convinced that Dr Pepper will be able to increase its dividend every year in the future by 5-10%. I suppose that without better revenue growth, rising the dividend will be based mainly in own shares in buy-back and rising the payout ratio.

Disclosure:  I do not own any shares of DPS.

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