A great comparison of $KO and $PEP. Which food dividend giant to choose?

Coca-Cola and PepsiCo are among the world's largest beverage producers and are both known for their long history of paying stable and gradually increasing dividends. Both companies are considered dividend aristocrats with more than five decades of dividend growth paid out. But can a clear winner be picked?

Which cola drink will dominate your portfolio?

Despite their many similarities, they differ in several key ways that may affect their ability to generate long-term dividend growth and, therefore, their attractiveness to investors seeking a stable dividend yield. What are these key differences?

Product portfolio - Coca-Cola $KO+0.2% focuses only on beverages, while PepsiCo $PEP-0.6% offers a broader mix of beverages and food, which affects their growth opportunities.

Dividend growth rate - Coca-Cola has been increasing its dividend for a longer period of time, signaling the stability of its dividend policy.

Profitability and financial position - Coca-Cola has higher profitability and lower debt, which gives it more leeway to grow its dividend.

Sectorgrowth opportunities - PepsiCo's more diversified portfolio may offer more growth opportunities to support dividend growth.

In this article, we'll take a closer look at these factors and evaluate which of these two popular dividend companies may offer a more attractive payout and dividend growth over a longer time horizon.

Coca-Cola $KO+0.2%

Coca-Cola is a global multinational corporation based in the United States that produces a wide range of soft drinks. It is the world's leading soft drink manufacturer with a huge reach and an extensive portfolio of brands.

KO
$65.29 $0.10 +0.15%

Coca-Cola's main product is the cola drink of the same name, but the company also owns a number of other popular brands such as Fanta, Sprite, Minute Maid and Powerade. Coca-Cola sells its products in more than 200 countries around the world.

Coca-Cola is known as one of the most valuable brands in the world and its image and advertising campaigns have a strong global reach. The company has a long history that dates back to 1886, when Coca-Cola was first introduced.

Today, Coca-Cola is a huge business with annual revenues in excess of $43 billion. It is one of the largest companies in the world by market capitalisation.

Coca-Cola is a highly profitable company with a massive market reach, operating as a holding company owning the brands and delegating the actual manufacturing activities to franchisees. It focuses primarily on soft drinks and has a long history of dividend growth.

Coca-Cola's dividend history is impressive. Source

PepsiCo $PEP-0.6%

PepsiCo is a global food and beverage company headquartered in the United States. It develops, manufactures and sells a wide range of food and beverage products worldwide.

PepsiCo's main beverage brands are Pepsi, Mountain Dew, Gatorade, and 7UP. Major food brands include Lay's chips, Doritos, Cheetos, Walkers, Quaker, and Ruffles.

PepsiCo operates in over 200 countries worldwide and generated sales of over $86 billion in 2021. It is one of the largest food and beverage companies in the world.

Unlike Coca-Cola, PepsiCo's portfolio is much more diversified and includes a broader mix of products, including food. It is trying to break into new growth areas such as health foods or plant-based beverages. PepsiCo has a long history of dividend growth since 1962. It has systematically increased its dividend and is among the so-called dividend aristocrats.

Pepsi's history is a little shorter, but no less impressive.

Although PepsiCo and Coca-Cola are competitive, they differ in some key aspects such as the breadth of their product portfolios, the pace of dividend growth or product focus.

Dividend

A closer look at the companies' dividend yield reveals that PepsiCo is a slightly more attractive option: while PepsiCo has a dividend growth CAGR of 7.39% over the last 5 years, Coca-Cola has only 3.53%.

The CAGR (compound annual growth rate), or average annual growth rate for a dividend, is an indicator of how fast a company's dividends grow over the long term. It expresses the average annual increase in the dividend amount over a longer time horizon.

A company's dividends typically grow at a certain percentage rate each year. The CAGR takes into account this growth rate and is able to calculate the average annual dividend increase over the past few years.

For payout ratios, however, the opposite is true. Pepsi currently has a 95% payout ratio and Coca-Cola only has a 58% payout ratio. KO has increased its dividend for 60 years in a row and PEP is not far behind, having increased its dividend for 50 years in a row. Both companies are dividend kings. I've already mentioned CAGR - so if you're looking for a stable, consistently growing dividend, Pepsi is the obvious choice.

Share buybacks contribute to dividend stability because fewer shares means more dividends per share, even if you pay the same gross dollar amount. When it comes to share buybacks, Coke has increased its share count by about 1% and Pepsi has reduced

The number of shares outstanding of $PEP-0.6% has been declining. That's a good sign. Source
Things aren't so rosy for $KO+0.2% anymore. Source

Pepsi is currently looking better on several fronts. There's just one catch - valuation.

After looking at the Q1 numbers for KO and PEP, KO seems stronger. In Q1 2023, PEP increased its revenue by 10.16% to $17.85 billion. It had gross profit of $9.86 billion and net profit of $1.94 billion.

Looking atfuture growth, PEP generated earnings per share of $6.46 during 2022, while KO generated earnings per share of $2.20. Analysts forecast that PEP will increase its earnings per share by 107.89% to $13.43 in 2032. KO is expected to increase its earnings per share by $2.53 or 115% over the same period.

Current EPS $KO+0.2%
EPS $PEP-0.6%

The current situation goes something like this - $PEP-0.6% has delivered nice results, I like its portfolio of brands and it's a dividend king, but the valuation is still too high. PEP's margins are significantly lower than KO's and their earnings per share growth is expected to lag KO's by 7.11% over the next decade.

One more look at analyst estimates.

Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

Read the full article for free?
Go ahead 👇

Do you have an account? Then log in . Or create a new one .

I've also dealt with this dilemma in the past. I took both just to be sure. But they were also both at slightly different prices 😉

Investment-wise, I guess I'm as pro-Pepsi as a man is pro-Coke 😀

The simple solution here is that the investor just buys both companies, but I only have $KO+0.2%. I think it's the leader in the industry and it's the biggest. I don't like $PEP-0.6% that much and I don't really like it when it comes down to it...

Thanks for the article, these are companies I have been following for a long time and waiting for their stock to drop.

I have both 🤷‍♂️

Timeline Tracker Overview