When I walk into a supermarket and I see there is a big sale going on, I'm a happy guy. When stocks become cheaper, I'm a happy guy. I'd love it if stocks slide lower from here.
Today I decided to put some capital to work.
- 33 shares of Dr Pepper Snapple Group Inc. (DPS) @ $45.00
This purchase will add $50.16 to my annual dividend income.
Dr Pepper Snapple Group went public in 2008. They've been raising their dividend since they've gone public. I expect this trend to continue. I like their brand names, the business is returning 100% of the profits to the stockholders through dividends and buybacks, no Europe exposure, so they have a lot of expansion possibilities in Europe.
Dr Pepper is one of those businesses that's returning 100% of its profits to shareholders, in the recent years payouts through buyback have been much higher in the form of share repurchases than dividends. GAAP accounting rules require the weighted average shares outstanding to be used in the EPS calculation, which isn't nearly as accurate in a period of rapidly declining share count. This makes, in my opinion, the shares look more expensive than they actually are. In the pas few years about 20% of the outstanding shares have been bought back and cancelled, this number is accalerating over time.
The stock trades at about 15x reported earnings, or a 6.67% earnings yield, which I think is a fair price. When I take the present valuation and look out +10 years, I can't see it not doing well. Each share earns about $3.00 and $1.52 gets sent to me in form of dividends. The payout ratio is a little over 50% which I think is fine.
Thanks for reading.