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This drinks company should prove to be a reliable dividend stock

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Financial commentators far smarter than I stress that this is the time to go to cash. But with consumer price inflation running at 10% and interest rates at 1.75%, let’s just say I am a little reluctant to see my hard-earned money devalue at over 8% a year. Therefore I am actively looking for dividend stocks that can consistently contribute to my bottom line.

To be clear, Britvic (LSE: BVIC)’s present dividend yield of 2.95% is hardly going to set the world alight and gets nowhere close to beating that present inflation rate, but I do believe there is plenty to like about this company.

Firstly, using the numbers from last year’s income statement, we have an earnings per share of 44.3p and dividend payment per share of 24.2p. Dividing one by the other provides a respectable dividend cover value of 1.83. This implies that this level of dividend is perfectly sustainable and well covered by earnings.

An interim dividend payment that was paid in July 2022 (7.80p) showed a 20% increase over the same period in 2021, again suggesting the company is on the right track. The latest Q3 update reported an 11.2% increase in revenues on the same period last year.

In 2020 Britvic signed a 20-year franchise bottling agreement with another soft-drink giant PepsiCo. This includes the production, distribution, marketing, and sales of soft drink brands that include Pepsi, 7UP and Mountain Dew.

Personally, I would be quite comfortable investing in this company that manufactures and distributes such well-known brands, even in this economic climate.   I would expect that the soft drink business would remain a consumer staple while more discretionary spending continues to deteriorate.  The CEO himself is quoted as saying that soft drinks fall into the “resilient” category.

I am aware that Britvic has a presence in Europe, which may be facing even more economic challenges than here in the UK, but am excited by its growing presence in Brazil. It appears that by holding shares in this company I get some emerging market exposure as well.

The company has stressed that it can mitigate the worst of the inflationary pressures that are facing all manufacturers. How it will be able to deal with rising energy costs in particular is less clear. Reassuringly, it describes its supply chain model as “robust”.

While the share price has languished somewhat over the past 12 months by around 16%, my focus here remains one of reliable income and capital preservation rather than capital gains. Therefore, I continue to watch this price action with interest looking for an opportune moment to add Britvic to my portfolio.

The post This drinks company should prove to be a reliable dividend stock appeared first on The Motley Fool UK.

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Michael Hawkins has no position in any of the shares mentioned. The Motley Fool UK has recommended Britvic. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.