Dividend Wars: Coke vs Pepsi
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) have been rivals forever, but they are also two classical and well regarded dividend stocks. Coca-Cola has been over performing PepsiCo in a big way in the last years, both when it comes to sales in carbonated drinks and in terms of share price performance. At current levels, however, PepsiCo may be a better addition to a portfolio, especially from the perspective of dividend investors.
We can see in the following chart from Ycharts the historical evolution of both companies’ dividend yields, and although they have generally moved in tandem, things started changing in 2011. Coke used to historically provide a higher dividend yield, but since that time Pepsi has taken the leadership position in yields, with a 3.3% versus 2.7% for Coke at current levels.
Pepsi increased its dividends by a 7.3% in 2011, while Coke did it at a 6.8%, so the main determinant of the change in dividend yields has been the much different evolution in price that the shares of the two companies have been showing lately. Coke has clearly over performed Pepsi in terms of returns for investors.
Price chart from Yahoo Finance
Over the last years Coke has won market share versus Pepsi in the gigantic US soda market, in fact Diet Coke displaced Pepsi from the second place in market share during 2010, so Coca-Cola now has the two best selling brands which are Coke and Diet Coke. That has been an important victory for Coca-Cola, and PepsiCo is trying to recover some of the lost ground in that business over the next years, but so far it has not been very successful in that difficult task.
On the other hand, investing is about the future, and investors should not underestimate the importance of PepsiCo´s other businesses. Food is as important as beverages for the company and even in the drinks category it’s not only about Pepsi and other carbonated drinks, products like Gatorade and Tropicana are growing strongly and backed by the global trend towards a more health conscious lifestyle.
From PepsiCo´s 2011 annual report:
PepsiCo´s acquisition of Quaker, which also produces Gatorade, in 2001 has been a huge success for the company, and PepsiCo´s CEO, Indra Nooyi, is quite focused on leading the company towards healthier products. The fact that Pepsi lost market share versus Coke in carbonated drinks doesn’t mean it won´t have growth opportunities in other markets.
These kinds of dividend plays, with solid fundamentals and diversified businesses, are ideal candidates to buy on price weakness and reduced valuations. This doesn´t make Coca-Cola less attractive on a fundamental basis, not at all. But from a dividend perspective PepsiCo looks like a more convenient alternative at current levels.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend PepsiCo and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.