I love Dr Pepper Snapple Group Inc. (DPS)’s original Dr Pepper. I really do. It’s a Texas thing, and it’s in my blood.

I’ve been known to drive 100 miles from Dallas to Waco to get “real” Dr Pepper made with cane sugar, and after I’ve been overseas for any length of time, my first stop after leaving the airport isn’t my home. It’s Whataburger. I leave my suitcase (and sometimes my wife and children) in the car and gorge myself on a disgustingly greasy Whataburger with cheese, washed down with a large Dr Pepper over crushed ice. Then I go home.

Long live Texas.

Alas, I don’t drink as much Dr Pepper as I used to. I’m too old, and it goes right to my ever-expanding gut. I might have a couple sugary soft drinks per month, if that. And I’m not alone. American consumption of soft drinks has been falling for ten straight years.

Yet interestingly, while Coca-Cola and PepsiCo have really struggled with falling unit sales of their core soft drinks, Dr Pepper Snapple has managed modest volume growth. Last quarter, DPS grew soft drink sales (which include Dr. Pepper, 7-Up and Schweppes, among a few other smaller brands) by a full 1%. And Dr Pepper has been slowly clawing market share away from Coke and Pepsi.

As a result of this bucking the trend, spunky underdog DPS stock has absolutely crushed its larger rival.


DPS stock is up about 80% over the past year, while KO is up about 20% and PEP has barely budged at all.

But being the fastest grower in a shrinking industry is still a losing proposition, which is why the market is abuzz with the news that DPS just made an investment in up-and-coming sports drink BodyArmor, a rival of PepsiCo’s Gatorade and Coca-Cola’s Powerade. Dr Pepper Snapple’s $20 million investment gives it about a 12% interest in the company. On a side note, Los Angeles Lakers star Kobe Bryant is also a major investor in BodyArmor.

BodyArmor is still a tiny niche player in a market that is totally dominated by Gatorade. Recent data shows Gatorade with a 77% share of the sports drink market, which in total does about $6.8 billion in annual sales. BodyArmor did a rather paltry $30 million in sales last year, giving it less than one half of one percent of the market.

So, which BodyArmor is a growing brand with a lot of potential, it’s not realistically going to be a major driver of revenues for Dr Pepper Snapple, which does $6.2 billion in annual sales. Or at least not any time soon.

So, where does that leave Dr Pepper Snapple, and might DPS stock still be a decent buy?

Actually, yes. DPS stock is not “cheap,” in a strict sense, trading at about 19 times next year’s expected earnings. But this is modestly cheaper than Coke and Pepsi, and DPS is also a company with very healthy margins and a fat return on equity of over 30%.

DPS stock also sports a respectable dividend yield of 2.4%, and it’s been growing that dividend at a nice clip. DPS’s quarterly dividend has more than tripled since 2010, and the company is also aggressively repurchasing its stock.

You’re probably not going to double your money in Dr Pepper Snapple any time soon. But in an overall overpriced market, I would expect DPS stock to deliver at least respectable total returns over the next year.

Don’t be late to the party – Click Here to see what 4500 Wall Street Analysts say about your stocks.