Coca-Cola And Pepsi Have More Than Tripled Their Dividends Over The Last 20 Years, Can Keurig Dr Pepper Do The Same?

Over the past two decades, The Coca-Cola Company KO and PepsiCo, Inc. PEP have proven themselves to be dividend growth powerhouses in the beverage industry. Both companies have not only maintained but significantly increased their dividend payouts, demonstrating their commitment to shareholder returns. As a relative newcomer to the scene, Keurig Dr Pepper Inc. KDP has shown promising signs of following in their footsteps. Let’s examine the dividend growth trajectories of these beverage giants and assess whether Keurig Dr Pepper has the potential to match their impressive performance.

Coca-Cola and PepsiCo’s Dividend Growth

Coca-Cola’s dividend growth has been remarkable over the past 20 years. In 2004, the company’s quarterly dividend was $0.125 per share (adjusted for splits). Today, it stands at $0.485 per share, representing a 288% increase. This translates to a compound annual growth rate (CAGR) of 7.01% over two decades. An investment in Coca-Cola 20 years ago would now earn a 7.63% yield on cost. 

Coca-Cola now offers a forward dividend yield of 3.1%, showcasing its ability to provide both growth and income to its shareholders.

PepsiCo has managed to outpace even Coca-Cola’s impressive dividend growth. In 2004, PepsiCo’s quarterly dividend was $0.23 per share. It has since grown to $1.355 per share, an astounding 489% increase. This represents a CAGR of 9.27% over the 20-year period. An investment in PepsiCo 20 years ago would now be earning a nearly 9.9% yield on cost. 

PepsiCo currently offers a forward dividend yield of 3.26%, slightly higher than its longtime rival.

Keurig Dr Pepper’s Dividend Journey

Keurig Dr Pepper, in its current form, is a much younger company. It was established in 2018 following the merger of Keurig Green Mountain Coffee and Dr Pepper Snapple. Despite its shorter history as a combined entity, KDP has already shown a strong commitment to dividend growth.

Upon completion of the merger, KDP initiated a quarterly dividend of $0.15 per share. In just six years, this has grown to $0.215 per share, representing a CAGR of 6.18%. More impressively, over the past three years, KDP’s dividend growth rate has accelerated to 12.09%, outpacing both Coca-Cola and PepsiCo’s 20-year CAGRs.

Can Keurig Dr Pepper Match Its Rivals’ Dividend Growth?

While it’s too early to say definitively whether KDP can sustain the same level of dividend growth as Coca-Cola and PepsiCo over a 20-year period, there are several reasons to be optimistic about its potential:

Strong Financial Performance: KDP’s Q1 2024 earnings release showed solid results, with net sales up 3.4% and adjusted diluted EPS growing 11.8% year-over-year. The company also reaffirmed its fiscal 2024 guidance for mid-single-digit net sales growth and high-single-digit adjusted diluted EPS growth.

Healthy Payout Ratio: KDP’s dividend payout ratio stands at 46%, which is lower than many of its consumer staples peers. This leaves room for future dividend increases without straining the company’s finances.

Robust Balance Sheet: With a net debt to EBITDA ratio of 3.43x, also lower than its peers, KDP has the financial flexibility to maintain and potentially grow its dividend while investing in growth opportunities.

Impressive Growth Rates: Over the past three years, KDP has demonstrated strong compound annual growth rates in both revenue (7.83%) and earnings per share (13.9%), providing a solid foundation for future dividend increases.

Positive Analyst Outlook: Recent analyst ratings from Truist Securities, UBS, and Wells Fargo have an average price target of $38.33, implying an 11.79% upside from current levels. This suggests confidence in KDP’s future performance.

Diversified Portfolio: KDP’s diverse range of brands across coffee, soft drinks, and other beverages provides multiple avenues for growth and helps insulate the company from fluctuations in any single market segment.

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While matching the 20-year dividend growth records of Coca-Cola and PepsiCo is a tall order, Keurig Dr Pepper has shown promising signs in its early years as a combined entity. The company’s strong financial performance, conservative payout ratio, and accelerating dividend growth rate over the past three years all point to its potential to become a dividend growth powerhouse in its own right.

However, investors should keep in mind that past performance does not guarantee future results. KDP will need to navigate changing consumer preferences, potential economic headwinds, and intense competition to maintain its growth trajectory. Nonetheless, for income-focused investors looking for exposure to the beverage industry, Keurig Dr Pepper presents an intriguing opportunity with its combination of current yield and potential for future dividend growth.

As always, investors should conduct their own due diligence and consider their individual financial goals and risk tolerance before making any investment decisions. While Keurig Dr Pepper may not yet have the decades-long dividend growth track record of Coca-Cola and PepsiCo, its early performance suggests it could be well on its way to joining the ranks of premier dividend growth stocks in the beverage industry.

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