Despite the sky-high inflation, the beverage industry has shown resilience due to the near-inelastic demand for its products. The beverage market was valued at $207 billion in 2022 and is expected to expand at a CAGR of 14.2% over the next five years, reaching $459.57 billion by 2027.
With consumer tastes changing rapidly, beverage manufacturers are innovating their portfolio mix to align with consumer preferences. Beverage companies are also releasing lower calorie alternatives to classic sugary drinks as consumers are becoming more health conscious.
On top of it, as per the report on Bacardi Cocktail Trends that was prepared in partnership with The Future Laboratory last year, around 58% of customers around the world are making a shift towards non-alcoholic and low-alcoholic beverages and cocktails. The global low-alcohol beverages market is set to be valued at $800 million in 2023.
Given the growing prospect of the industry, fundamentally strong beverage stocks PepsiCo, Inc. (PEP), Ambev S.A. (ABEV), and Primo Water Corporation (PRMW) that pay stable dividends might be ideal buys for 2023.
PepsiCo, Inc. (PEP)
Beverage giant PEP manufactures, markets, distributes, and sells various beverages and convenient foods worldwide.
On December 14, Doritos, a subsidiary of PEP, launched Doritos After DarK, a late-night dining concept serving upgraded, internationally-influenced snacks. The new product expands its product line and should boost its revenue stream.
On November 17, PEP increased its quarterly dividend by 7% from the prior-year value to $1.15 per share, payable on January 6, 2023. PEP has the longest history of increasing annual dividends, paying for 50 consecutive years. Its current dividend of $4.60 translates to a 2.57% yield annually.
Over the last three years, PEP’s dividend payouts have grown at 6.1% CAGR. Also, it has a four-year average dividend yield is 2.78%.
PEP’s net revenue increased 8.8% year-over-year to $21.97 billion in the third quarter that ended September 3, 2022. Its net income attributable to PEP increased 21.5% from the year-ago value to $27.02 billion, while its EPS increased 21.9% from its year-ago value to $1.95. Moreover, the company’s operating profit rose 6.1% from the prior-year quarter to $3.35 billion.
Analysts expect PEP’s EPS to increase 7.4 %year-over-year to $1.64 in the fiscal fourth quarter ending December 2022. Its revenue will likely increase 5.9% year-over-year to $26.73 billion in the same quarter. The company has an impressive earnings surprise history, as it surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 11.7% over the past three months, closing the last trading session at $179.33.
PEP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has an A grade for Quality and B grade for Stability, Sentiment, and Growth. Within the A-rated Beverage industry, it is ranked #8 out of 35 stocks.
Click here for additional POWR Ratings for Value and Momentum for PEP.
Ambev S.A. (ABEV)
ABEV produces, distributes, and sells beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. The company operates through four segments: Brazil; Central America and the Caribbean; Latin America South; and Canada. The company is headquartered in São Paulo, Brazil.
ABEV pays an annual dividend of $0.14 that yields 5.32% on prevailing prices, which is higher than its four-year average dividend yield of 3.46%.
For the fiscal 2022 third quarter ended September 30, 2022, ABEV’s net revenue increased 11.3% year-over-year to R$20.59 billion ($3.92 billion), while its gross profit grew 7.6% year-over-year to R$9.93 billion ($1.89 billion). The company’s normalized EBITDA increased 2.4% year-over-year to R$5.60 billion ($1.07 billion).
Street expects ABEV’s EPS to increase marginally year-over-year to $0.05 in the fiscal fourth quarter ended December 2022. Also, its revenue is expected to rise 7.1% year-over-year to $4.60 billion in the same quarter.
The company has surpassed the consensus EPS estimates in each of the trailing four quarters and revenue estimates in three out of the trailing four quarters, which is impressive.
ABEV’s shares have gained 7% over the past six months to close its last trading session at $2.72.
It’s no surprise that ABEV has an overall B rating, which equates to a Buy in our POWR Ratings system.
ABEV has an A grade for Quality. The stock is ranked #12 in the same industry.
To access additional grades for Momentum, Stability, Value, Growth, and Sentiment, click here.
Primo Water Corporation (PRMW)
PRMW provides pure-play water solutions for residential and commercial customers. It offers bottled water, water dispensers, purified bottled water, self-service refill drinking water, premium spring, mineral water, sparkling and flavored water, filtration equipment, and coffee. The company sells its products through retailers and online at various price points.
On October 12, PRMW announced that Primo Water North America, a wholly owned subsidiary of PRMW, has acquired substantially all the assets of Crystal Spring Water Company, a bottled water company based in Rhode Island. The acquisition will add approximately 2,500 customers to PRMW, strengthening its footprint in the Northeast region.
On November 9, PRMW declared a dividend of $0.07 per share on common shares, payable in cash on December 9, 2022. Its annual dividend of $0.28 yields 1.77% on the current market prices, and its four-year average dividend yield is 1.72%. The company has raised its dividend at a CAGR of 5.3% over the past three years.
In the fiscal third quarter ended October 1, 2022, PRMW’ net revenue increased 6.1% year-over-year to $584.60 million. Its operating income increased 6.6% from its year-ago value to $45 million, while its gross profit increased 12.9% year-over-year to $348.20 million.
PRMW is expected to witness a marginal revenue growth from its prior-year quarter to $0.09 for the fiscal 2023 first quarter ending March 2023. Its EPS is estimated to increase 2.6% year-over-year to $530.42 million in the same quarter.
The stock has gained 22.2% over the past three months to close the last trading session at $15.80.
The company’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Quality and Sentiment. PRWM is ranked #9 in the same industry.
Beyond what we’ve stated above, we have also given grades for Value, Momentum, and Stability. Get all PRWM ratings here.
PEP shares were trading at $178.04 per share on Tuesday afternoon, down $1.29 (-0.72%). Year-to-date, PEP has declined -1.45%, versus a 1.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
3 Top Beverage Stocks to Buy for 2023 StockNews.com
