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KO vs. PEP: Which Dividend Aristocrat is a Better Buy Right Now?

The battle between Coca-Cola Company (KO) and PepsiCo (PEP) has been seemingly eternal, with loyal followers of both taking sides in the legendary “Cola Wars”  over the years. The rivalry has spilled over into the stock market, too – even as both companies have rewarded their investors handsomely over the years in the form of dividend payments and steady earnings growth.

For investors looking to take a side when it comes to KO vs. PEP, here’s a closer look at these two Dividend Aristocrats, and what they each have to offer in terms of earnings growth, yield, valuation, strategic initiatives, and more. 

Dividend Aristocrat #1: Coca-Cola Company

Founded in Atlanta in 1886, Coca-Cola has gone on to become one of the most iconic and recognizable beverage brands of the world. It manufactures and distributes carbonated soft drinks, fruit juices, bottled water, sports drinks, energy drinks, coffee, and tea. Some of its most popular brands include Coca-Cola, Fanta, Sprite, Dasani, Minute Maid, Powerade, Monster Energy, Costa Coffee, and Fuze Tea. It currently commands a mammoth market cap of $255.7 billion.

KO stock is down about 2.3% over the past 52 weeks, lagging the broader S&P 500 Index ($SPX).

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Both Coca-Cola and Pepsi are Dividend Aristocrats, which refers to S&P 500 members who have raised dividend payments for at least 25 years consecutively. KO currently yields 3.11%, which is above the consumer staples sector median, and has raised dividends for 61 years straight.

In its latest quarterly report, Coca-Cola’s net revenues rose 8% to about $12 billion. The company reported EPS of $0.74 for Q3, which represented yearly growth of 7.3%, and beat the consensus estimate of $0.69. Coca-Cola’s EPS has surpassed analysts’ expectations in each of the past five quarters.

For the nine months ended Sept. 29, Coca-Cola generated net cash from operating activities of $8.9 billion, up 10.7% from the previous year. The company closed the quarter with a cash balance of about $11.9 billion, well above its short-term debt obligations of $2.1 billion.

Coca-Cola is increasingly devoting resources to bolster its digital media presence, allocating 60% of its total media spending to digital from the previous 30%. The company is also actively incorporating generative AI into its operations to gain better insights into consumer behavior, for market research, and to identify trends. This should support the company’s bottom line, as Coke says digital advertising has yielded better results with consumers compared to traditional advertising.

Additionally, Coke is exploring avenues to enter new product markets, such as the ready-to-drink alcoholic beverages category.

Analysts have a “Strong Buy” rating for Coca-Cola overall, with a mean target price of $65.75 – indicating an upside potential of roughly 10.7% from current levels. Out of 15 analysts covering the stock, 11 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 4 have a “Hold” rating.

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Dividend Aristocrat #2: PepsiCo

PepsiCo was founded seven years after Coke, in 1893. It manufactures and distributes carbonated soft drinks, juices, bottled water, sports drinks, energy drinks, coffee, tea, snacks, chips, dips, and crackers, with top brands like Pepsi, Mountain Dew, Gatorade, Tropicana, Quaker Oats, Fritos, Lay’s, Doritos, and Ruffles in its portfolio. Its market cap currently stands at a sizable $228.99 billion. 

PEP stock has underwhelmed with its price action over the past 52 weeks, off 1.5% over this time frame.

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Like Coke, Pepsi has achieved “Dividend King” status by raising its dividends every year for a half-century, with 51 years of consecutive growth. PEP currently yields 3.04%, not far behind KO.

In its latest earnings report, Pepsi banked quarterly net revenues of $23.4 billion, up 6.7% from the previous year. EPS rose even more sharply, up 14.2% to $2.25 over the same period, and surpassing the consensus estimate of $2.15. In fact, the company’s EPS has topped expectations in each of the past five quarters.

For the nine months ended Sept. 9, 2023, Pepsi’s net cash from operating activities increased by 21% from the prior year to $7.6 billion. The company closed the quarter with a cash balance of $10.1 billion, higher than its short-term debt obligations of $8.9 billion.

With its diverse product range, from carbonated drinks to savory snack items, Pepsi has a broader portfolio than its cola rival. The company also has plenty of room for expansion in the key Asia-Pacific region; 43% of its revenues come from overseas, but only about 6% from Asia. 

Analysts have a rating of “Moderate Buy” for Pepsi stock, with the 17 analysts in coverage split between 9 “Strong Buys” and 8 “Holds.” The mean target price of $190.20 is a 13.5% premium to current levels. 

KO vs. PEP: Which Stock Is a Better Buy Right Now?

When it comes to top-quality consumer stocks with rock-steady dividends, investors are unlikely to regret buying either KO or PEP over the long haul. For those looking to choose a side in the Cola Wars, though, PEP edges out KO on the basis of a few key metrics right now.

Analysts are expecting Pepsi to report forward revenue growth of 6.65%, outpacing the sector median of 5.1%, and roughly on pace with Coke’s forward revenue growth, estimated at 6.61%. However, PEP is currently priced at 2.52x forward sales, which is a significant discount to the 5.63 price/sales multiple for KO right now.

Plus, forward EPS growth for PEP is estimated at 9.21%, edging out KO’s 6.54%.

In fact, over the past 10 years, Pepsi has reported revenue and EPS at compounded annual growth rates (CAGRs) of 3.29% and 2.88%, respectively. By comparison, Coca-Cola’s 10-year revenue CAGR is -0.48%, and the same metric for EPS is 2.50% – both trailing Pepsi’s.