It is virtually impossible not to look at Coca-Cola (NYSE: KO) if you are considering buying PepsiCo (PEP 0.77%) and vice versa. The two companies are iconic and globally dominant beverage giants. The price charts of the two stocks, however, look very different today. If you are a long-term dividend investor, PepsiCo looks like it is the most attractive after Coca-Cola’s recent rally. Here’s why.
What do Coca-Cola and PepsiCo do?
Coca-Cola makes a wide range of beverages. Basically, that’s all it does. The company does this very well, with a massive global distribution network, research and development acumen, and marketing skills that place it in the pantheon of the consumer staples sector. It also has the scale to act as an industry consolidator, buying up companies with attractive products and growing them by simply plugging the new products into Coca-Cola’s distribution system. It is a one-trick pony, but it is a very good trick.
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PepsiCo makes a wide range of beverages. It also makes a wide range of snacks and packaged food products. It has a massive global distribution network, a strong research and development department, and a marketing team every bit as good as Coca-Cola’s. As for scale, PepsiCo has a long history of buying smaller brands and expanding them, just like Coca-Cola. PepsiCo’s most recent endeavor on this front is Mexican American food maker Siete, which offers both snacks and packaged food items.
PepsiCo may not be as dominant a beverage company as Coca-Cola; Pepsi-Cola has dropped to third in the cola wars. However, it is the No. 1 snack brand and a very solid No. 2 in the broader beverage space. In packaged food, it holds its own against larger peers. In other words, it is a well-run and diversified food company. Investors who like diversified businesses will probably prefer PepsiCo based on this fact alone.
That said, both Coca-Cola and PepsiCo are Dividend Kings, which speaks to the strength of their underlying businesses. Coca-Cola’s dividend streak is a little longer, but a company simply can’t increase its dividend for 50+ years without having a good business plan that gets executed well year in and year out. These two consumer staples companies stand toe-to-toe as businesses, with the exception of diversification.
Coca-Cola is doing better right now
That said, every company that exists for long enough will go through both good periods and bad periods. Right now, PepsiCo is facing some business weakness while Coca-Cola is executing better. Investors are aware of the dichotomy and buy and sell accordingly. If you look at the chart below, it almost seems like the two companies switched places. But short-term business gyrations aren’t what long-term investors should be worried about. The bigger question is whether or not the company, be it Coca-Cola or PepsiCo, is still well run.
The answer is that both of these consumer staples giants remain well run, but Coca-Cola is just doing a little better right now. The problem with PepsiCo is really a relative one since it was able to push through large price hikes when inflation took hold following the coronavirus pandemic. That boost is now over and it “only” grew organic sales 2% and core earnings 9% in 2024. It is calling for similar performance in 2025, with low-single-digit sales growth and mid-single-digit earnings growth. That’s actually not bad in the consumer staples sector, which is known for being a slow and steady performer.
Based on that news, however, investors have punished the stock, which is down around 20% from its peak in 2023. The drop has pushed PepsiCo’s yield up toward the highest levels in the company’s history. And its price-to-sales and price-to-earnings ratios are below their five-year averages. This is a well-run company that looks like it has been placed on the sale rack.
By comparison, Coca-Cola’s stock has rallied in recent months. Its dividend yield is nowhere near the historical highs for the stock. And the price-to-sales and price-to-earnings ratios are now both above their five-year averages. Prior to the rally, Coca-Cola was more compellingly priced, but now it looks a little expensive. That makes PepsiCo look all the more attractive, given their direct competition in the beverage sector.
Think long term and buy PepsiCo over Coca-Cola
None of this is meant to suggest that Coca-Cola is a bad company. In fact, it is a very good company. It just isn’t as compellingly valued as PepsiCo, an equally good company, is right now. The reason has more to do with the myopic vision of Wall Street, which focuses too much on the short term. If you think in decades, particularly if you are an income investor, PepsiCo and its historically high 3.5% yield look even more attractive following Coca-Cola’s price rally.
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