The beverage industry has long been fertile ground for dividend investors. Coca-Cola (KO -0.03%) and Pepsi (PEP -0.03%) have delivered steadily rising cash payouts and solid total returns to investors for decades. And with each company's stock currently yielding about 3.5%, they remain popular options for income-focused investors.
But which of these dividend stalwarts is the better buy now? Let's find out.
Image source: Getty Images.
Competitive positioning
Coca-Cola and Pepsi dominate the $200 billion global soft drink and bottled water manufacturing industry. Recently, Coca-Cola has been gaining soda market share,with co*ke Zero Sugar and Diet co*ke enjoying solid sales gains in the first quarter.
However, overall soda sales have declined steadily for much of the past decade-- a trend that's likely to continue for the foreseeable future. More and more people are turning away from high-sugar drinks, as well as those containing artificial sweeteners, which has dented sales of co*ke and Pepsi and their diet versions.
Coca-Cola and Pepsi have diversified their beverage product lineups in response to these trends. They've invested heavily in tea, juice, and bottled water, which has helped offset declines in their core soda businesses.
But Pepsi went a step further. The company has become a powerful force in the snack foods business, with popular brands such as Lays, Doritos, Tostitos, Cheetos, and Quaker Oats,among others.
While many of these snack foods aren't exactly healthy, an increasing amount of Pepsi's products do fit the "better for you" description. For example, Pepsi recently acquired Bare Foods Co, maker of a popular line of natural vegetable- and fruit-based snacks. "For nearly a dozen years, PepsiCo has been committed to Performance with Purpose, our vision of making more nutritious products, while also reducing added sugars, salt, and saturated fat," CEO Indra Nooyi said in a press release announcing the deal. "Bare Snacks fits perfectly within that vision."
Pepsi's snack business provides it with a greater degree of revenue diversification than Coca-Cola, which has remained purely a beverage company. Moreover, snack foods -- particularly healthier options -- represent a large and steadily growing market opportunity. For these reasons, I'd argue that Pepsi has the edge in terms of competitive positioning.
Advantage: Pepsi.
Financial fortitude
Let's now take a look at some key financial metrics to see how Coca-Cola and Pepsi stack up.
Metric | Coca-Cola | Pepsi |
|---|
Revenue | $33.92 billion | $64.42 billion |
Operating income | $9.28 billion | $10.56 billion |
Operating cash flow | $7.00 billion | $8.83 billion |
Free cash flow | $5.49 billion | $5.79 billion |
Dividends paid | $6.32 billion | $4.53 billion |
Cash | $21.37 billion | $20.61 billion |
Debt | $48.99 billion | $43.53 billion |
Data sources: Morningstar, Yahoo! Finance.
Pepsi is the larger business in terms of revenue, with nearly twice as much as Coca-Cola. Yet Coca-Cola is the more profitable business, with an operating margin of greater than 27% over the past year compared to 16.4% for Pepsi. As a result, their operating profits are more similar than you might otherwise expect.
Coca-Cola is also the more capital-light business -- Pepsi's capital expenditures were twice that of Coca-Cola in the past year. As such, Coca-Cola's free cash flow is only about 5% less than that of its larger rival. These two beverage titans also have similar balance sheets.
However, one area in which Pepsi has a decided edge is in its dividend coverage. Pepsi's cash dividend payments to shareholders were well covered by the free cash flow it generated over the past year, while Coca-Cola paid out about $800 million more in dividends than it produced in free cash flow. Coca-Cola expects its cash flow production to improve in the years ahead, so this may not be much of an issue, but it's enough for me to give Pepsi the edge in terms of financial fortitude.
Advantage: Pepsi.
Growth
With demand for sodalikely to decline further in the coming years, revenue growth will remain a challenge for both Pepsi and Coca-Cola. Still, Wall Street expects Pepsi to increase its earnings per share at an annualized rate of 7.54% over the next five years,fueled by continued growth in its Frito-Lay snacks business. Meanwhile, Coca-Cola's earnings per share (EPS) are anticipated to rise by 7.23% annually during this same time, driven primarily by price increases and cost cutting.
A 0.3% difference isn't enough for me to give Pepsi much of an edge in terms of projected EPS growth, so I'll call it a draw here.
Advantage: None.
Valuation
Lastly, let's take a look at some key value metrics for these two beverage giants, including their price-to-free cash flow (P/FCF), price-to-earnings (P/E), and price-to-earnings-to-growth (PEG) ratios.
Metric | Coca-Cola | Pepsi |
|---|
P/FCF | 35.11 | 28.14 |
Forward P/E | 20.13 | 18.91 |
PEG | 2.97 | 2.63 |
Data source: Yahoo! Finance.
Pepsi's stock is nearly 20% less expensive than Coca-Cola's in terms of price to free cash flow. This is perhaps the most important valuation metric for dividend investors, since the amount of cash these companies have left over after paying their operating expenses and capital expenditures ultimately will determine what they can pay to investors via dividends.
Pepsi's shares are also 6% cheaper on a forward price-to-earnings basis, which is a measure of what investors are paying for each dollar of earnings these businesses are projected to generate in the next year. And it's 11% cheaper on a price-to-earnings-to-growth basis, which takes into account Pepsi's slightly higher expected EPS growth.
Thus, Pepsi's stock is the better bargain.
Advantage: Pepsi.
The better buy is...
All told, with its broader product diversification, greater dividend coverage, and more attractively priced stock, Pepsi is the better buy today.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
FAQs
Both stocks trade at a nearly identical price-to-earnings ratio (P/E), which values the stock based on its profits. Speaking of profits, analyst estimates call for Coca-Cola to grow earnings per share (EPS) by an average of 6% annually over the next three to five years, compared to 7% for PepsiCo.
Is Pepsi or co*ke a better stock buy? ›
Taking into consideration both PepsiCo's lower Payout Ratio and its higher Dividend Growth Rate [CAGR] over the past 5 years when compared to Coca-Cola, we identify strong indicators that PepsiCo is the slightly more attractive pick for Dividend Income and Dividend Growth Investors.
Is Coca-Cola a good stock buy now? ›
The Coca-Cola Company is a high quality dividend stock and a great investment to consider for all types of investors with steady and increasing top-line growth predicted.
Why Coca-Cola is the best stock? ›
The company's dividend, its broad geographic base, and its leadership in key on-the-go beverage niches make it a great choice for investors worried about a recession developing in the U.S. market over the next few quarters.
Is Pepsi a good long term stock? ›
PEP sits at a Zacks Rank #2 (Buy), holds a Growth Style Score of B, and has a VGM Score of B. Earnings and sales are forecasted to increase 8% and 7.2% year-over-year, respectively. Two analysts revised their earnings estimate upwards in the last 60 days for fiscal 2022.
Why choose Pepsi over co*ke? ›
As Gladwell also found in his research about taste, people tended to prefer Pepsi in a single sip test because naturally, we're drawn to sweeter sips. It's proven by Pepsi's nutritional content that it has slightly more sugar than co*ke, and therefore Pepsi tends to take home a sip test easily with a big advantage.
Is co*ke a buy sell or hold? ›
Coca-Cola has received a consensus rating of Buy. The company's average rating score is 2.75, and is based on 9 buy ratings, 3 hold ratings, and no sell ratings.
Is Coca-Cola stock a buy sell or hold? ›
Coca-Cola has a conensus rating of Strong Buy which is based on 10 buy ratings, 2 hold ratings and 0 sell ratings. The average price target for Coca-Cola is $68.75. This is based on 12 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Will Coca-Cola stock go up in 2023? ›
It has been predicted that by 2023, Coca-Cola stock prices will rise to their current level. Our research indicates that the highest possible price for Coca-Cola stock by 2023 is $85.12. If sales trends continue, however, the average cost of a Coca-Cola can reach $76.05.
Why did Warren Buffett buy Coca-Cola stock? ›
Warren Buffett's Berkshire Hathaway made a significant investment in shares of beverage giant Coca-Cola in 1988, when the stock's price was depressed following a market crash. Buffett and others at Berkshire recognized Coca-Cola's market advantages, believing that the company was poised to recover.
Coca-Cola
Coca-Cola (KO 0.74%) is a strong and steady player that makes a great addition to your portfolio -- for its dividend payments and earnings track record. Let's look at the dividend first. The world's biggest non-alcoholic beverage company pays an annual dividend of $1.76 per share at a yield of 2.77%.
What is the highest co*ke stock has ever been? ›
CocaCola - 61 Year Stock Price History | KO
- The all-time high CocaCola stock closing price was 64.30 on April 21, 2022.
- The CocaCola 52-week high stock price is 66.38, which is 3.5% above the current share price.
- The CocaCola 52-week low stock price is 54.02, which is 15.8% below the current share price.
Overall, PepsiCo is one of the best recession-proof stocks in the market and appears positioned to extend its streak of paying higher dividends every year since 1971 regardless of the economic environment.
Is Pepsi a buy now? ›
Out of 9 analysts, 4 (44.44%) are recommending PEP as a Strong Buy, 0 (0%) are recommending PEP as a Buy, 4 (44.44%) are recommending PEP as a Hold, 0 (0%) are recommending PEP as a Sell, and 1 (11.11%) are recommending PEP as a Strong Sell. If you're new to stock investing, here's how to buy Pepsico stock.
Is Pepsi a safe stock? ›
For 2023, PepsiCo expects its organic sales to rise 6%, and for its core EPS to increase 8% on a constant-currency basis. That confident outlook reinforces PepsiCo's reputation as a safe bear market buy.
Does anyone prefer Pepsi over co*ke? ›
The Bottom Line. This test was a close one! While most staffers in our Test Kitchen preferred Pepsi in a blind test, that doesn't mean that Coca-Cola was bad in any way. Some testers thought co*ke is just a little too sweet and not quite fizzy enough compared to Pepsi—which isn't negative by any stretch.
What soda is the healthiest to drink? ›
Healthiest Sodas to Drink
- Sierra Mist. This soda wins by a small margin, as it has the nutritional value of 140 calories, 37 g of sugar, and 35 mg of sodium for 12 oz. ...
- Sprite. As you may have guessed, Sprite takes the second spot. ...
- 7UP. What is this? ...
- Seagram's Ginger Ale.
Coca-Cola outsells Pepsi in most parts of the U.S., notable exceptions being central Appalachia, North Dakota, and Utah. In the city of Buffalo, New York, Pepsi outsells Coca-Cola by a two-to-one margin.
At what price did Warren Buffett buy Coca-Cola? ›
In 1988, Buffett and Berkshire Hathaway made a splash by buying shares of Coca-Cola. By the end of the year, Berkshire Hathaway had acquired 14,172,500 shares at an average price point of $41.81.
How high will co*ke stock go? ›
Stock Price Forecast
The 20 analysts offering 12-month price forecasts for Coca-Cola Co have a median target of 70.00, with a high estimate of 75.00 and a low estimate of 63.00. The median estimate represents a +9.14% increase from the last price of 64.14.
The Coca-Cola Company quote is equal to 64.145 USD at 2023-04-29. Based on our forecasts, a long-term increase is expected, the "KO" stock price prognosis for 2028-04-19 is 88.614 USD. With a 5-year investment, the revenue is expected to be around +38.15%. Your current $100 investment may be up to $138.15 in 2028.
Will co*ke stock split again? ›
From a share price standpoint, there's not a lot of evidence to suggest that Coca-Cola would split its stock again, since the share price remains close to what it was at the end of last year, at just over $50 per share.
Will share a co*ke come back? ›
Back by popular demand, Coca-Cola® is reintroducing its wildly successful “Share a co*ke” program under a new name – “Share an ICE COLD co*ke” – as a reminder that nothing beats the summer heat quite like an ice-cold, delicious Coca-Cola.
What is the average price of a Coca-Cola stock? ›
Performance Outlook
| Previous Close | 63.68 |
|---|
| Bid | 64.05 x 4000 |
| Ask | 64.14 x 900 |
| Day's Range | 63.48 - 64.16 |
| 52 Week Range | 54.02 - 66.38 |
3 more rowsOne Year Stock Price Total Return for Coca-Cola is calculated as follows: Last Close Price [ 60.43 ] / Adj Prior Close Price [ 58.19 ] (-) 1 (=) Total Return [ 3.8% ] Prior price dividend adjustment factor is 0.97.
What is target price for Pepsi? ›
Stock Price Forecast
The 17 analysts offering 12-month price forecasts for PepsiCo Inc have a median target of 201.00, with a high estimate of 220.00 and a low estimate of 178.00. The median estimate represents a +5.76% increase from the last price of 190.05.
What is the forecast for Coca-Cola sales in 2023? ›
The company reiterated its prior forecast for 2023. It is projecting organic revenue growth of 7% to 8% and comparable earnings per share growth of 4% to 5% for 2023. Additionally, co*ke expects commodity inflation to affect its cost of goods sold by the mid single digits in 2023.
Who owns the most stock in Coca-Cola? ›
Berkshire Hathaway is the largest shareholder of Coca-Cola, owning 9.2% of its shares. As of December 2022, the market value of Berkshire Hathaway's stake in Coca-Cola was $25.4 billion. Berkshire Hathaway owned 400 million shares in Coca-Cola and controlled 400 million shareholder votes as of December 2022.
Who actually controls the stock market? ›
The stock market is regulated by the U.S. Securities and Exchange Commission, and the SEC's mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation." Historically, stock trades likely took place in a physical marketplace.
What is the dividend payout for Coca-Cola? ›
Historical dividend payout and yield for CocaCola (KO) since 1964. The current TTM dividend payout for CocaCola (KO) as of April 04, 2023 is $1.84. The current dividend yield for CocaCola as of April 04, 2023 is 2.97%.
Comparison Results
| Name | Price & Change | Analyst Price Target |
|---|
| MO Altria Group | 47.51 +0.32 (+0.68%) | $48.56 (2.21% Upside) |
| T AT&T | 17.67 +0.06 (+0.34%) | $22.73 (28.64% Upside) |
| XRX Xerox | 15.67 -0.01 (-0.06%) | $15.33 (-2.17% Downside) |
| IBM International Business Machines | 126.41 -0.56 (-0.44%) | $147.71 (16.85% Upside) |
5 more rowsLook for $12,000 Per Year in Dividends
To make $1,000 per month in dividends, it's better to think in annual terms. Companies list their average yield on an annual basis, not based on monthly averages.
What are the best high dividend stocks to buy? ›
Best High-Dividend Stocks And How To Invest In Them
| Company | Share Price On Date (INR) | Dividend Yield |
|---|
| Goodyear | 1065.85 | 9.38% |
| Banco Products | 227.85 | 8.78% |
| Polyplex Corp | 1269.50 | 8.19% |
| GlaxoSmithKline | 1281.45 | 7.02% |
11 more rows2 days ago
By investing 1000$ in KO 10 years ago, you would have earned a total dividend of 428$ (until 2023-04-18). For more detailed history of KO stock dividend report.
What is the highest a single stock has ever gone? ›
- What Is the Highest Stock Price Ever? Berkshire Hathaway holds the title for having the highest stock price—$445,000.
- What Was Apple's Highest Stock Price Ever? Apple's highest stock price was $702.10 in September 2012.
- How Can You Find a Stock's All-Time High and All-Time Low?
Stock Info
The table below provides details of each of the eleven stock splits conducted in the history of The Coca-Cola Company, including the cumulative number of shares that would be held if one share of stock was purchased when the stock began trading in 1919.
Is Pepsi a good stock to buy? ›
Out of 11 analysts, 4 (36.36%) are recommending PEP as a Strong Buy, 1 (9.09%) are recommending PEP as a Buy, 5 (45.45%) are recommending PEP as a Hold, 0 (0%) are recommending PEP as a Sell, and 1 (9.09%) are recommending PEP as a Strong Sell. If you're new to stock investing, here's how to buy Pepsico stock.
Is PepsiCo a good stock to own? ›
Pepsi's stock isn't a screaming value today, but it isn't expensive either. Priced at about 3 times annual sales, its valuation is roughly in the middle of the range that investors have seen in the past three years. But investors still might want to consider adding this dividend stock to their portfolio.
Is it worth it to invest in PepsiCo? ›
Still a good value
Still, Pepsi is growing faster than it has in years, and its performance through the pandemic and the immediate aftermath demonstrates how the company can generate strong sales and earnings through a wide range of selling conditions.
Who is more profitable co*ke or Pepsi? ›
The last fiscal year for both companies turned a profit. However, co*ke reported a profit of $9.8 billion whereas Pepsi only reported a profit of $7.6 billion overall. So for 2022, co*ke was the more profitable company.
PepsiCo Inc quote is equal to 190.880 USD at 2023-04-29. Based on our forecasts, a long-term increase is expected, the "PEP" stock price prognosis for 2028-04-19 is 265.112 USD. With a 5-year investment, the revenue is expected to be around +38.89%. Your current $100 investment may be up to $138.89 in 2028.
Will Pepsi's stock go up? ›
Stock Price Forecast
The 17 analysts offering 12-month price forecasts for PepsiCo Inc have a median target of 201.00, with a high estimate of 220.00 and a low estimate of 178.00. The median estimate represents a +5.30% increase from the last price of 190.88.
Is Pepsi a dividend paying stock? ›
Historical dividend payout and yield for PepsiCo (PEP) since 1989. The current TTM dividend payout for PepsiCo (PEP) as of April 21, 2023 is $4.60. The current dividend yield for PepsiCo as of April 21, 2023 is 2.48%.
Is PepsiCo a stable stock? ›
For the full year, PepsiCo's revenue rose 9% to $86.4 billion. Its organic sales grew 14% as its core EPS climbed 11% in constant-currency terms. Those rock-solid growth rates made PepsiCo a top safe-haven stock as inflation and rising rates weighed down the broader markets.
Is Pepsi losing market share? ›
Pepsi has been slowly losing market share in the carbonated soft drink category for years, standing at 8.7 percent in 2020. In the beverage segment, PepsiCo's main challenger has always been Coca-Cola. As a brand, Coca-Cola had a value of over five times that of Pepsi.
Is Apple stock a good buy now? ›
Despite the challenges Apple faces, its stock forecast is still strong. The consensus among analysts is that the company will perform well over the next few years, and it's considered a “strong buy” based on a Nasdaq analysis of recommendations by 26 analysts.
What is the average return of PepsiCo stock? ›
After reading this report, you will know the average annual return of Pepsico Inc (PEP) stock and the performance compared to broader market indices.
...
2 How Pepsico Inc (PEP) Stock Performed Against The Entire Stock Market.
| Company Name | 10-Year Return (%) |
|---|
| Pepsico Inc (PEP) | 11.86% |
| NASDAQ (IXIC) | 12.47% |
A premium valuation
Costco shares have performed extremely well over the past five years, rising 161% (as of March 17), absolutely trouncing the broader S&P 500's total return of 57%. As a result, Costco's stock now trades at a price-to-earnings (P/E) ratio of 36.
Why is co*ke so much more expensive than Pepsi? ›
Coca-Cola has more market share and for the last 40 years, Pepsi has spent billions in advertising to convince us that their carbonated sugar water is better than co*ke but have failed miserably. Until their market share creeps closer to Coca-Cola's, co*ke has no reason to consider lowering their prices.
Does Pepsi outsell co*ke? ›
Coca-Cola outsells Pepsi in most parts of the U.S., notable exceptions being central Appalachia, North Dakota, and Utah.
