As of March 28, Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple (DPS) have delivered total returns of 3.2%, 8.2%, and 7.8%, respectively, on a YTD (year-to-date) basis. Notably, PepsiCo and Dr Pepper Snapple have delivered a higher YTD total returns than the 5.9% generated by the S&P 500 Index (SPX).
Total shareholder return, or total return, constists of any appreciation in the stock price of a company in addition to returns in the form of dividends. As of March 28, the stock prices of Coca-Cola, PepsiCo, and Dr Pepper Snapple have risen 2.3%, 7.5%, and 7.2%, respectively, on a YTD basis.
Dividends and share repurchases
As of March 28, Coca-Cola had a higher dividend yield of 3.5%, as compared to 2.7% and 2.4% from PepsiCo and Dr Pepper Snapple, respectively.
In 2016, Coca-Cola returned $8.3 billion to shareholders through $6.0 billion in dividends and the rest through share repurchases. Share repurchases or buybacks are an alternative way of enhancing shareholder returns. In February 2017, Coca-Cola’s board raised its quarterly dividend by 6.0% to $0.37 per share, marking its 55th consecutive annual dividend increase.
Remember, share repurchases or buybacks are an alternative way of enhancing shareholder returns. Share repurchases enhance earnings per share by bringing down the average share count.
PepsiCo’s dividends and share repurchases
In 2016, PepsiCo returned $7 billion in cash to shareholders by way of dividends and share repurchases. PepsiCo has increased its annualized dividend per share (effective the June 2017 payment) for the 45th consecutive year.
The company announced a 7.0% rise in its annualized dividend to $3.22 per share. In 2017, PepsiCo plans to return about $6.5 billion in cash to shareholders, including $4.5 billion in dividends and $2.0 billion in share repurchases.
The dividend aristocracy
Coca-Cola and PepsiCo are dividend aristocrats, which is a term used for firms that have increased their dividends for at least 25 consecutive years. These two companies account for 2.6% of the SPDR S&P Dividend ETF (SDY).
In 2016, Dr Pepper Snapple returned $905 million to shareholders, with $386 million in dividends and $519 million in share repurchases. In February 2017, Dr Pepper Snapple raised its quarterly dividend by 9.4% to $0.58 per share. In 2017, the company wants to buy back up to $500 million of its shares.
We’ll look at the analyst recommendations for these companies in the next part of this series.