Monday, June 24, 2013

Latest buy: DPS

Finally, a little correction in the market! Why is this a good thing? I'm an investor in the accumulating phase of his life. I want my stock be as cheap as possible now, so I can buy the most dividend income and future profit with my dollars today.

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.




Today's buy:

  • 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.


3 comments:

  1. DPS has the makings of another soda giant that is also a great dividend growth stock. They have low debt and a low payout ratio considering they are raising the dividends about 30% a year. That's crazy growth! I'll be watching this one.

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  2. Captain Dividend,

    Yeah, the growth numbers look pretty good. I love the defensive beverage industry. It's like a small version of KO.

    Thanks for stopping by!

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  3. Nice buy here!

    I just looked at DPS recently after you mentioning it on my blog. I'm concerned about the licensing deals they have set up with other companies, including Mondelez which effectively allow outside companies to distribute their products in foreign markets. DPS is buying back some of these licenses, but international expansion is coming a bit late as they have to fight KO and PEP in territories where distribution and marketing has been set up for years. Certainly something to keep an eye on!

    Otherwise, looks great!

    Best wishes.

    ReplyDelete