Why I remain bullish on this FTSE 250 dividend stock after today’s news

Paul Summers remains bullish on this defensive FTSE 250 (LON:INDEXFTSE:MCX) stock.

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Investors haven’t been short of news from London-listed drinks companies in recent days. Today, it was the turn of Robinson’s- and J2O-owner Britvic (LSE: BVIC) to provide an update on trading.

Based on this rather brief statement (and in contrast to one of its peers), it would appear the FTSE 250 constituent is holding its own.

Confident outlook

Revenue came in at £360.1m over Q3 — a fall of 1.5% at constant currency compared to the same period in 2018.

Geographically, performance was mixed. Sales grew in Britain, despite the market “declining in value and volume” as a whole over the three months to 7 July. Oversea revenue growth also continued to be “solid“, but the French and Irish markets showed signs of “further softening since the half-year.”

While today’s statement hasn’t seen the shares fizz higher, the fact the company is still confident of meeting analyst forecasts for the full-year in spite of “a more challenging backdrop” may be considered something of a victory for holders. Especially after what happened over at Irn-Bru-maker AG Barr last week.

To recap, the latter’s share price dived on 16 July after it reported that sales and profits would likely drop 10% and 20%, respectively in the current financial year as a result of poor weather and issues with some of its brands such as Rockstar and Rubicon.

While management certainly can’t be blamed for the lower temperatures in 2019, it’s clear Barr’s decision to increase prices after focusing on raising volumes in 2018 has backfired. Steps to resolve the brand-related issues have apparently been taken, but it will take a while to see the benefits.

To rub salt into the wound, interim results from AIM-listed peer and Vimto-maker Nichols were far more reassuring. Last week, the business reported growth in both the UK and overseas with revenue and pre-tax profit up by 10.2% and 2%, respectively. 

In my opinion, Nichols represents the standout quality pick of the three since it consistently generates the highest operating margins and returns on capital employed and also boasts a net cash position.

That said, its valuation of 23 times forecast earnings makes it the most expensive stock to buy. Despite a long history of increasing cash payouts to holders, the 2.3% yield is unlikely to whip dividend seekers into a frenzy either.

As things stand, AG Barr is the least investable, in my view. At 21 times forecast earnings, the shares still aren’t cheap enough, considering the uncertain outlook and the likelihood of further exceptional costs being announced later this year. On the flip-side, I suppose any further pressure on the share price could make the company an attractive takeover target. 

For value and income hunters, however, Britvic looks the clear winner. The stock trades at just 15 times earnings FY19 and comes with a best-in-class forecast yield of 3.5%, covered almost twice by profits.

Considering its market-cap, big portfolio of brands, and the fact it holds the licence to distribute Pepsi and 7Up in the UK and Ireland, I also think the company could be the most defensive option for those concerned by the volatility of smaller stocks and the susceptibility of these firms to things outside of their control.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers owns shares in Nichols. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK has recommended Nichols. 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.

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