Consumer staples companies have pricing power. They are able to raise prices to offset inflation causing labor, input, freight, and packaging expenses to rise. As a result, many are beating estimates and trading near 52-week and all-time highs. Moreover, dividend growth investors know these stocks have long dividend growth streaks for a reason. The bottom line is people beed food, and basic necessities.
However, Keurig Dr. Pepper (KDP) is not a stock participating in the run up. Despite beating first quarter estimates, the stock price is down because sales volumes are lower on high pricing.
According to Stock Rover*, the stock price is down (-5.8%) year-to-date and (-8.7%) in the trailing year after adjusting for dividends return. For perspective, the S&P 500 Index is down only (-2.2%) in the past twelve months.
Keurig Dr. Pepper is yielding approximately 2.4%, about double the S&P 500 Index’s average. Moreover, the dividend is growing at a double-digit rate in the past two years. The dividend was kept constant for two years after the IPO. Moreover, the moderate payout ratio of ~45%, suggest more increase to come. The dividend is safe too with declining leverage and dividend safety score of a ‘B.’
Source: Portfolio Insight*
The decline in stock price has caused the valuation to fall too. The forward earnings multiple is 18.6X, below the 5-year range. Although the firm has only a short trading history, most beverage stocks tend to trade at premium because of their consistent revenue, earnings, and cash flow.
Hence, investors seeking exposure to a coffee stock with market leadership single-serve coffees and K-pods should look here.
Source: Portfolio Insight*
Disclosure: Long KDP
Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.