The Coca-Cola Company (KO), PepsiCo, Inc. (PEP): What’s Not to Like About These Beverage Companies?

PepsiCo’s snacks and food division provides greater diversification in its portfolio of products. If consumers find a permanent dislike for soda then PepsiCo (NYSE:PEP) can capitalize on its growth in the snacks division.

The little brother Dr. Pepper Snapple Group

Dr Pepper Snapple Group Inc. (NYSE:DPS) owns many other well-known brands such as Dr. Pepper, 7-Up, Hawaiian Punch, and Mott’s apple juice. While The Coca-Cola Company (NYSE:KO) and PepsiCo may be the titans of the beverage industry, Dr. Pepper Snapple Group represents the little brother.

Dr Pepper Snapple Group Inc. (NYSE:DPS) continually searches for new ways to improve top and bottom line performance through new product innovations such as the Ten Platform, a line of low calorie carbonated soda beverages, and new avenues of distribution for products such as Mott’s apple juice. Moreover, the company focuses on cost reduction through programs such as the rapid continuous improvement program where employees focus on improving safety, operational efficiency, and quality.

In the most recent quarter, Dr Pepper Snapple Group Inc. (NYSE:DPS) increased revenue 1%.  Dr. Pepper Snapple Group’s free cash flow swung from a negative $372 million to a positive $26 million. Dr. Pepper Snapple Group’s dividend yield equates to 3.1%. However, Dr. Pepper Snapple Group’s dividend to 2012 free cash flow payout of 110% is a little much. Dr Pepper Snapple Group Inc. (NYSE:DPS)’s focus on product innovation and cost savings will move this company forward over the long term.

Conclusion

In summary all of these companies possess likable qualities. The Coca-Cola Company (NYSE:KO) focuses on maintaining market leadership in beverages. PepsiCo (NYSE:PEP) enjoys ubiquity in beverages and snack foods. Dr Pepper Snapple Group Inc. (NYSE:DPS)’s focus on product innovation, cost savings, quality, and efficiency will propel this company forward. If you want diversification within an industry these three companies represent a way to go.

*Free Cash Flow=(Operating Cash Flow-Capital Expenditures-Purchase of Intangible Assets+Disposals of Plant, Property, and Equipment)

The article What’s Not to Like About These 3 Beverage Companies? originally appeared on Fool.com and is written by William Bias.

William is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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