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Sodapop Showdown: Coca-Cola (KO Stock) vs Pepsi (Pep Stock) - A Dividend Analysis Deep Dive

Updated: Dec 24, 2022

Coca-Cola versus Pepsi

Just like the Soda Wars, dividend investors often wonder which dividend paying soda company reigns supreme. Today, we're going to look at Coca-Cola stock ($KO) and Pepsi stock ($PEP) and try to crown a winner. Both are dividend aristocrats, Coca-Cola has paid and grown their dividend for 60 years, whereas Pepsi has done the same for 50 years. Both companies are in the consumer staples market. So, Pepsico stock versus Coca-Cola stock, which is a better investment for a dividend investor? In this article we'll look at which dividend aristocrat prevails! Pepsi, Coke, where's my dividend?

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Table of Contents

Price Growth (YTD) for 2022 P/E Ratio Revenue Profit Margin

Free Cash Flow Payout Ratio

Dividend Yield

Dividend Growth and Yield on Cost Conclusion

Price Year to Date (2022)

Coca-Cola and Pepsi Price Chart

First, we'll take a look at Coca Cola stock price and the Pepsi stock price. Overall, share price isn't the driving factor when dividend investing. Don't get me wrong, we'll all take share appreciation combined with dividends any day of the week! In a year that's had double digit negative return both Pepsi and Coca-cola have done extremely well. Coca-Cola returned 6.13% compared to the slightly lower return of 4.39% posted by Pepsi. Both respectable returns, given the year. Dividend reinvesting would have given you an even higher returns, showing the power of Dividends. Coca-Cola's total return was 9.27% compared to Pepsi's 7.64% return. Not to shabby. Both KO stock price and Pep sotck price have performed well this year.


Coca-Cola P/E Ratio VS Pepsi P/E Ratio

Coca-Cola and Pepsi P/E Ratio Chart

Remember, the price-to-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive $1 of that company’s earnings. Currently, $KO and $PEP have a very similar P/E ratios, 27.55x for $KO and 25.94x for PEP. Historically, Coca-Cola and Pepsi have had similiar P/E ratio. We'll need to keep an eye on both as we move into 2023 to see if the companies start to diverge.


Coca-Cola Revenue VS Pepsi Revenue

Coca-Cola and Pepsi TTM Revenue Chart

Pepsi's revenue is almost twice as much as Coca-Cola's. Pepsi's revenue is $83.64B compared to the $42.34B earned by Coca-Cola. Pepsi has a lightly better recovery from 2019-2020 lows with a 31% increase in revenue over the last five years. This is only part of the picture, we still need to look at profit margin.

TIP: What Is Profit Margin?

Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale. For instance, if a business reports that it achieved a 35% profit margin during the last quarter, it means that it had a net income of $0.35 for each dollar of sales generated. Source: Investopedia

Coca-Cola and Pepsi Profit Margin Chart

Coca-Cola Profit Margin VS Pepsi Profit Margin

In the chart above, we can see that Pepsi's profit margin is 11.3% and Coca-Cola's is 23.44%. So, what does that mean? Using the revenue listed above we can see roughly how much revenue each company is converting into profit.

Coca-Cola: $9.92B in Profits

Pepsi: $9.45B in Profits

Now that we've compared the two we can see that both companies are producing around the same amount of profits even though Pepsi produced two times the revenue.


Coca-Cola Free Cash Flow (FCF) VS Pepsi Free Cash Flow (FCF)

Tip: What Is Free Cash Flow (FCF)?

Free cash flow (FCF) is the cash a company generates after taking into consideration cash outflows that support its operations and maintain its capital assets. In other words, free cash flow is the cash left over after a company pays for its operating expenses (OpEx) and capital expenditures (CapEx). Source: Investopedia

Coca-Cola and Pepsi Free Cash Flow Chart

Next, we'll take a look a the FCF values for both Pepsi and Coca-cola. Coca-cola is producing $10.04B in FCF compared to $6.38B produced by Pepsi. Let's combine this with payout ratio to get a full picture on the stability of each companies dividends.

Tip: What Is Payout Ratio?

The payout ratio is a financial metric showing the proportion of earnings a company pays its shareholders in the form of dividends, expressed as a percentage of the company's total earnings. On some occasions, the payout ratio refers to the dividends paid out as a percentage of a company's cash flow. The payout ratio is also known as the dividend payout ratio.

Coca-Cola and Pepsi Dividend Payout Ratio Chart

Coca-cola Payout Ratio VS Pepsi Payout Ratio

Coca-cola's payout ratio sits around 76% where as Pepsi is at 64% leaving both companies with a decent amount of room to continue paying and increasing dividends.

Rough Remainer after Dividends when comparing FCF with Payout Ratio:

Coca-cola: $2.4B funds remaining

Pepsi: $2.29B funds remaining

Both companies have around $2.3B FCF left over once dividends are paid for which is more than enough for dividend growth and re-investing back into the company.


Coca-cola Dividend Yield VS Pepsi Dividend Yield

Coca-cola Dividend Yield: 2.78%

Coca-Cola Dividend: $0.44 per quarter / $1.76 annually

60 Years of Dividend Growth

Pepsi Dividend Yield: 2.42%

Pepsi Dividend: $1.15 per quarter / $4.60 annually

50 Years of Dividend Growth

Consumer Staples Avg Yield - 1.89%

If you're looking at dividend yield alone then Coca-Cola is the clear winner but we know that dividend yield isn't the full story. First thing we need to look at is whether the current yield is in line with the average diviend yield for each company. As dividend investors we can use this as rules of thumb. While not always true we can infer the following:

If the dividend yield is higher than historical averages - The price is lower than average, potentially a buying opportunity

If the dividend yield is lower than historical averages - The price is higher than average, potentially telling us to hold off because it might be overpriced

Coca-cola and Pepsi are slightly lower than their averages but consistent enough that they aren't leaning either way. Both are higher than other companies inside the consumer staples sector.

Winner: TIE

Coca-Cola and Pepsi Average Dividend Yield Chart

Dividend Growth and Yield and Cost

Another important factor to consider is dividend growth. Dividends growth at a consistent basis is import, especially, one is growing faster than the other. This could quickly increase your passive income on the original capital you invested.

Coca-Cola and Pepsi Dividends per Share CAGR Chart

Pepsi's compound annual growth rate (CAGR) rate is 6.55% compared to 4.76% earned by Coca-Cola. Both companies are outpacing inflation's average of 3-4%. Obviously, they aren't beating 2022's current inflation rate. This growth rate will translate to Yield in Cost increasing proportionally with CAGR. This should put Pepsi ahead.

Coca-Cola and Pepsi Dividend Yield on Cost Chart

Yield on Cost

In the near term (3Y/5Y) Coca-Cola and Pepsi are neck and neck. If you owned the companies for the last ten years though you would see a divergence in Pepsi's favor. If you had $1,000,000 invested in each you would be receiving the following in passive income:

Coca-cola (4.75%) - $47,500 annually

Pepsi (6.45%) - $64,500 annually

Looking at the chart the Yield on Cost at fifteen year puts Pepsi ahead slightly as well. This is mostly due to Coca-cola slowing its' dividend growth in the last five years. Assuming this trend continues, Pepsi edges out Coca-Cola.



So, who's the winner. Lets recap each category before we grown a winner.

Price Growth (YTD) for 2022 - TIE P/E Ratio - TIE Revenue/Profit Margin - TIE

Free Cash Flow/Payout Ratio - TIE

Dividend Yield - TIE

Dividend Growth and Yield on Cost - Pepsi


Ultimately, Pepsi edges out Coca-Cola due to the long term growth of Pepsi's dividend. Taking into account the last ten years, Pepsi would be the better investment for the long term investor. The competition was extremely close and I believe either would be a wise investment since we don't know if Pepsi or Coca-Cola will end up keeping true to their Dividend Growth trends. Only time will tell.

Which soda company would you choose? Leave a comment below.

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