The FTSE 250 contains some decent, defensive, evergreen cash-generating companies, such as soft drinks supplier Britvic (LSE: BVIC). And, right now, City analysts are predicting an impressive resurgence in shareholder dividend payments for 2021 of around 20%.
Why I think Britvic is a great FTSE dividend payer
I reckon the stock is a good candidate for my long-term portfolio and a decent vehicle for compounding wealth. And that potential upthrust in the dividend next year is a bigger increase than those analysts are predicting for many other defensive companies I’m watching. For example, they expect Diageo’s dividend to rise by about 4.5% and Unilever’s by about 7%.
In fairness though, Britvic was affected by the Covid-19 pandemic. Earnings plunged in the full trading year to September by around 37%, and the dividend slipped by about 21%. So, the anticipated increase in the shareholder payment will restore the dividend back near pre-Covid levels.
However, Britvic continued trading through the crisis, and the cash flowing into the business held up well. I think that’s one reason backing up analysts’ rosy expectations around shareholder dividend payments. Meanwhile, with the share price near 840p, it’s still more than 20% below its pre-Covid peak earlier in the year. But those same analysts reckon earnings will come roaring back in 2021 too. And they’ve pencilled in an increase close to 27%.
Based on those estimates for earnings and the dividend in the current trading year to September 2021, I think the forward-looking valuation looks fair. The earnings multiple runs near 15.5 and the dividend yield at about 3.4%. And I think the six-year record of cash-backed growth in earnings is worth me buying into. Indeed, after the pandemic has faded, I reckon the company has a good opportunity to continue its operational progress.
Strong operational progress
The signs are good because, in October, the company announced a new and exclusive PepsiCo bottling agreement. The 20-year franchise will continue a relationship between the two companies and provides Britvic with security and visibility ahead.
Indeed, Britvic reckons it is “one of the leading branded soft drinks businesses in Europe.” And the business has been built around the company’s “leading” brands such Fruit Shoot, Robinsons, Tango, J2O, London Essence, Teisseire and MiWadi, along with PepsiCo brands such as Pepsi, 7UP and Lipton Ice Tea.
With Britvic, I view the recent weakness in earnings, the dividend and the share price as a temporary setback caused specifically by the pandemic. When that recedes, I expect operations to bounce back and continue their progress. The underlying business remains robust, cash flow is strong, and the long-term prospects for steady dividend growth are attractive.
So, I’d be happy to buy some of the shares today with the intention of holding onto them for the long-term. Indeed, 20 years from now, I may be glad I did!
Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Britvic, Diageo, and Unilever. 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.