Image source: Britvic (copyright Chris Saunders 2020)
As an investor constantly looking for solid dividend-paying stocks to bolster my passive income stream, British (LSE:BVIC) has caught my eye recently, and it seems I'm not the only one. Danish brewing giant Carlsberg It has also set its sights on the British soft drinks maker, with two takeover attempts already rejected this month.
This soft drink giant, known for popular brands such as Robinsons and J2Ohas been creating a buzz in the market. But is it the refreshing addition my portfolio needs or could a potential acquisition change the equation? Let’s take a closer look at the matter.
market fact
The stock has been on a tear, with an impressive return of 38.6% over the past year. This significantly outperformed both its industry peers in the UK drinks sector (which saw a drop of 20.8%) and the wider UK market (which returned 5.8%). Recent speculation about a takeover has given the stock an added boost, rising 10% on the day the approaches were made public.
Dividend income
The company currently offers a dividend yield of 2.7%. While it may not be the highest yield in the market, it is certainly nothing to sneeze at in the current environment. Furthermore, the company’s dividend payout ratio stands at a reasonable 62%, suggesting that there is decent scope for future dividend growth without putting undue pressure on the company’s finances.
However, it is worth noting that the company has a shaky dividend history. While it is not the only company to have suffered supply chain disruptions in recent years, this could be a potential red flag for investors looking for reliability in their passive income streams.
The assessment
According to a discounted cash flow (DCF) calculation, the stock is currently trading 36.3% below its estimated fair value. While this is not a guarantee, when I see a company with some momentum and a lot of growth potential ahead, I definitely want to take a closer look.
Carlsberg’s latest offer of 1,250 pence per share values the company at £3.1bn, representing a premium of around 29% to the share price before the rumours emerged. However, the board believes this “significantly undervalues” the company.
Considerations on acquisitions
The potential acquisition adds an interesting dynamic to the investment case. On the one hand, it could lead to a higher offer price, which could mean a quick profit for existing shareholders. Carlsberg sees “attractive long-term growth opportunities” in the company’s portfolio.
On the other hand, an acquisition would mean the end of the stock as a viable dividend investment, which could prove disappointing for those seeking long-term passive income.
Next steps
Despite the uncertainty, I think there is reason for optimism. Analysts are forecasting earnings growth of 12.5% annually, which could support future dividend increases and share price movements. The company's international expansion and focus on healthier beverage options could also drive growth in the coming years as consumer demands change.
While Britvic may not have the highest-yielding dividend on the market, it offers an interesting combination of growth, undercutting potential, and passive income. For investors willing to accept some risk, Britvic could be a refreshing addition to a portfolio. I'll add it to my watchlist for now, keeping a close eye on how the situation develops.
