2 Beverage Stocks to Buy Now for the Long Haul

Despite sky-high inflation, the beverage industry is expected to remain afloat due to near-inelastic demand for its products. Beverages have grown in popularity as consumers have developed a habit of drinking soft drinks when eating and drinking out.

The revenue of the global beverage segment is expected to reach $257.30 billion in 2023. Moreover, the worldwide food and beverage market is expected to grow to $4.65 trillion in 2027 at a CAGR of 5.4%.

In addition, according to a report developed in collaboration with The Future Laboratory last year on Bacardi Cocktail Trends, around 58% of customers worldwide are shifting toward non-alcoholic and low-alcoholic beverages and cocktails. In 2023, the worldwide low-alcohol beverage market is expected to be worth $800 million.

Given the industry's growth prospects, we think quality beverage stocks PepsiCo, Inc. (PEP) and Primo Water Corporation (PRMW), which pay stable dividends, might be ideal buys for the long haul.

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes and sells beverages and convenient foods worldwide. It operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, South Asia; Asia Pacific, Australia, and New Zealand; and China Region.

On December 14, Doritos, a PEP subsidiary, introduced Doritos After Dark, a late-night eating concept that serves enhanced, internationally-inspired snacks. The new product widens its product line and should increase revenue.

On December 5, 2022, PEP announced a new packaging goal to double down the scale of reusable packing models from 10% to 20% by 2030. This announcement aligns perfectly with the company’s sustainable packaging vision.

PEP has paid dividends for 50 consecutive years. Over the last three years, PEP’s dividend payouts have grown at a 6.1% CAGR. While PEP’s four-year average dividend yield is 2.77%, its current dividend translates to a 2.61% yield.

PEP’s net revenue came in at $21.97 billion for the third quarter that ended September 3, 2022, up 8.8% year-over-year. Its gross profit increased 8% year-over-year to $11.66 billion. Also, its operating profit came in at $3.53 billion, up 6.1% year-over-year.

Analysts expect PEP’s revenue to increase 3.5% year-over-year to $88.31 billion in 2023. Its EPS is estimated to grow 7.5% year-over-year to $7.29 in 2023. It has surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 11.8% to close the last trading session at $176.06.

PEP’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

PEP has an A grade for Quality and a B for Growth, Stability, and Sentiment. In the A-rated Beverages industry, it is ranked #7 out of 36 stocks. Click here for the additional POWR Ratings for Value and Momentum for PEP.

Primo Water Corporation (PRMW)

PRMW provides water direct to consumers and water filtration services in North America and Europe. It serves bottled water, purified bottled water, premium spring, sparkling and flavored water, mineral water, filtration equipment, coffee, water dispensers, and self-service refill drinking water.

On November 10, 2022, Tom Harrington, CEO, said, “During the quarter we continued to execute our differentiated Water Your Way platform. The continued investment in our digital platforms, increased connectivity of dispenser sales to our water solutions, and continued optimization of our route-based operations provides a strong foundation to achieve our long-term growth targets.”

PRMW has paid dividends for nine consecutive years. Over the last three years, PRMW’s dividend payouts have grown at 5.3% CAGR. While PRMW’s four-year average dividend yield is 1.72%, its current dividend translates to a 1.83% yield.

PRMW’s net revenue came in at $584.60 million for the third quarter that ended October 1, 2022, up 6.1% year-over-year. Its operating income increased 6.6% from its year-ago value to $45 million, while its gross profit increased 12.9% year-over-year to $348.20 million.

PRMW’s revenue is expected to increase 4.7% year-over-year to $2.33 billion in 2023. Its EPS is estimated to increase 25% year-over-year to $0.85 in 2023. Over the past six months, the stock has gained 18.2% to close the last trading session at $15.34.

PRMW’s overall B rating indicates a Buy in our proprietary rating system. It has an A grade for Growth and a B for Quality.

PRMW is ranked #11 in the same industry. To see additional POWR Ratings for Value, Stability, Sentiment, and Momentum for PRMW, click here.

PEP shares were trading at $173.01 per share on Wednesday morning, down $3.05 (-1.73%). Year-to-date, PEP has declined -4.23%, versus a 3.85% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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