I’d buy 340 shares of this FTSE 250 stock for £100 annual passive income

Buying 340 Britvic shares could unlock £100 a year in dividends. Here’s why I think this FTSE 250 stock could be a terrific investment today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Mature black couple enjoying shopping together in UK high street

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Britvic (LSE:BVIC) has been quite a lucrative dividend stock in the FTSE 250 over the last decade. Having grown its shareholder payouts for seven years in a row (between 2012 and 2019), investors saw their passive income nearly double.

Sadly, the pandemic halted the firm’s impressive streak as lockdowns unsurprisingly punched beverage sales on the nose. But since then, management has steered the ship back on course. As such, dividends have resumed their upward trend, almost entirely recovering to pre-pandemic levels.

Dividend per Share (p)

At its current stock price and payout level, investors can immediately unlock a £100 annual income stream by simply buying 340 shares in this soft-drinks empire. With a dividend yield of 3.3%, this transaction would cost just over £3,000. However, assuming the firm can resume its historical average dividend expansion of 7.8%, this annual payout could grow substantially in the long run.

With that in mind, let’s take a closer look at this FTSE 250 enterprise and what caveats investors must consider before jumping on the passive income bandwagon.

What does Britvic do?

Britvic is one of the largest non-alcoholic beverage manufacturers in the UK. When strolling down the drinks aisle in the supermarket, if a brand isn’t owned by Coca-Cola, chances are Britvic is behind it.

The firm’s brand portfolio includes household names like Robinsons’, J20, Lipton Ice Tea, and Fruit Shoot, among others. And it’s even the company responsible for bottling PepsiCo products as well.

But its presence stretches beyond just the UK since Britvic has operations scattered worldwide, including France and Brazil. The latter has proven to be a challenging operating environment, given poor weather conditions led to a knock-on crop supply, resulting in a drop in sales volumes. And yet it seems Brazilian consumers are still happy to pay a premium because management raised prices to offset this impact, resulting in a 17% revenue growth from this market.

Overall, sales volumes were up slightly in its latest results, and profit margins are rising. So it’s not a surprise that interim dividends were once again hiked, pushing the FTSE 250 stock’s yield in the right direction.

Even FTSE 250 stocks have risks

I’ve already highlighted the supply chain challenges Britvic is tackling in South America. However, some other concerning factors could pose a significant risk to dividends if not taken care of.

As it stands, the group has around £732m of loan obligations and equivalents on its balance sheet. And with interest rates being hiked by the Bank of England, the firm’s financing costs have jumped from £7.8m to £11.4m over the past year.

The company still generates more than enough cash flow to cover this expense. However, continued rate hikes will likely place increasing pressure on the FTSE 250 stock’s bottom line. If left unchecked, dividend growth could grind to a halt.

Nevertheless, management has highlighted that it’s monitoring its interest rate risk exposure. And with economic conditions beginning to improve, future rate hikes could be set to slow in the coming quarters.

Therefore, with the company seemingly back on track, investors may find Britivic an excellent candidate for an income portfolio. At least, that’s what I think.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Britvic Plc. 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.

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

These 2 UK shares could help me reach £1,000,000 in my Stocks and Shares ISA

A FTSE 100 compounding machine and a FTSE 250 value stock are the UK shares Stephen Wright thinks could help…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

If I’d invested £1,000 in Lloyds shares at the start of the year, here’s what I’d have now

The stock market is unmoved, but Stephen Wright thinks last year’s record profits might give Lloyds shares a long-term boost.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

I’ll snap up shares in this growth stock in March if others don’t get there first

This Fool says shares in this growth stock are stable, full of profit, and might be undervalued. But there are…

Read more »

Rainbow foil balloon of the number two on pink background
Investing Articles

My 2 top energy investment trust picks for a passive income

I'm aiming to buy more of these investment trusts for a passive income and the reasonably stable energy sector returns…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

5.5% dividend yield! Shares like these could be great for my retirement

Oliver Rodzianko thinks this company with a stellar dividend yield could be very useful when looking for income from his…

Read more »

Investing Articles

Should I buy this FTSE 250 stock as it soars back to the FTSE 100?

This FTSE 250 stock has rallied following its pandemic woes. This Fool thinks now could be a good time to…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

How I’d aim to transform an empty Stocks & Shares ISA into £1m of wealth!

There's never a better time to start investing in a Stocks and Shares ISA than today. Here's how I'd aim…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

Investing £14,708 in this FTSE 100 stock could earn me £1,000 per year in passive income

Is a CMA investigation into anticompetitive practices the cloud cover Stephen Wright needs to start buying shares in a FTSE…

Read more »