What About Dr. Pepper?
Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) seem to be the eternal archenemies that are always brought up when soda is being discussed. This makes sense, since these are the two companies that sell the two most popular colas. The companies are also two different animals, however. Pepsi makes more from selling snacks through its Frito Lays division than it does selling soda, unlike the more beverage-based Coke. Both companies make relatively safe long-term investments, but is there a more attractively valued third option?
The soda battles...
Let's stick with Coke and Pepsi for now. Both companies have impressive beverage line-ups that can be found in most gas stations or convenience stores. Want Coke? McDonald’s offers it. Are you a bigger fan of Pepsi? Skip Mickey Dee's and head for Taco Bell or KFC (Both owned by Yum! Brands) where you can grab a Pepsi or Mountain Dew soda, or (in the case of Taco Bell) even grab a Taco with a shell made of Doritos-- which contributes to Frito Lay/PepsiCo.'s profits. Then there is the Costco case, in which Coca-Cola recently got dumped for Pepsi. The war for market share seems like it will continue eternally, where restaurants, stores, and vendors often have to pick sides-- and opt for solely Coke or solely Pepsi.
What about valuations?
Both companies are sporting almost identical P/E ratios of around 19 at this time, and what almost seems like fate keeping the competition that much closer, they are both priced at around 16 times earnings going forward. While Coca-Cola has the larger market cap, Pepsi did own the higher dividend payout, albeit not by much (yielding about 2.90% to Coke's 2.70%) until Coke came out and upped their dividend by 10% on Feb 21-- making it about equal to Pepsi's. Pepsi is into the food business, while Coke is more of a pure-beverage play, but the companies still appear eerily similar. An investor can side with Coke-- a favorite of Warren Buffett (one of his largest positions) or go with the more diversified Pepsi for its lucrative snack business. Or they can just buy both. Or they can consider the smaller player who often stands on the sidelines while Coke and Pepsi are duking it out.
The small player with the big dividend...
Heard of Welch's? Yoo-Hoo, 7UP, A&W, Dr. Pepper, and Snapple? These are just some of the lines offered by the Dr. Pepper Snapple Group (NYSE: DPS), who engages in the ownership, manufacture, and distribution of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. Sure, RC Cola may pale in comparison to a Coke or a Pepsi-- but the company does have an impressive line of other unique drinks as well, such as Hawaiian Punch, Canada Dry, and Squirt. The company's market cap of only about $9 billion is also miniscule in comparison to its two larger competitors, but here are a couple of reasons why Mr. Market is missing out on the “Good Dr.”
1.) A P/E of only about 14.5 with a forward P/E of around 13 makes the company discounted to its peers.
2.) A much higher yield than both Coke and Pepsi, sitting at around 3.50%, is even more attractive considering its current valuations.
The bottom line
Coke and Pepsi both make great investments, but why not also consider Dr. Pepper? The company doesn't have the premium baked into its share price that its two competitors do, and with the company also trading at a discount-- that could mean more upside in the future. With a 3.5% yield, the company will also pay you to wait. That's a nice dividend in today's market, especially when factoring in the company's current valuations. Dr. Pepper can not only provide a nice source of income for your portfolio, but is also a great deal at its current levels-- especially in a rising market.
All financial data and company profiles obtained from Yahoo Finance
Jharry1 owns shares of Coca-Cola. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!