Black Friday Dividend Stock match up: Coke (KO) or Pepsi (PEP) ?

By: ispeculatornew
Date posted: 11.25.2010 (5:00 am) | Write a Comment  (6 Comments)

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It is a universal question. Almost everywhere in the world, consumers are subjected to a choice, Coca-Cola or Pepsi. They each have their leading brand of beverages but have expanded into many different products such as juices and water. I am personally a Pepsi drinker above Coke and while I can live with Coke, it will never end up being my #1 choice. Both picks are debatable and some often dispute that we can see the difference. I beg to differ but in the end it really does not matter that much does it?

Looking for some deals for Black Friday?

Don’t get me wrong, there are many good deals right now and you could probably get a major upgrade to your tv set for under $2000. But my question is the following, if you were to buy a dividend stock instead of a tv, wouldn’t that end up being a much better choice? Every month, I take a look at the top 100 dividend stocks in the S&P500 and then subscribers to our free newsletter receive a more in depth analysis where I filter according to the important factors that I consider to be key elements for winning dividend stocks. Both Coca-Cola (KO) and Pepsi (PEP) have appeared as top picks so it seemed fitting to match them up and determine the top dividend stock. Obviously, I don’t expect to find an obvious winner because the companies are so similar that they are treated in a similar manner by investors. If you did have to pick one of these names for your Black Friday present, which one would it be?

Dividend Metrics

First off, let’s take a look at the numbers and marks:

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You can also take a look at the dividend payout charts for both companies:

Coca-Cola (KO)

Pepsi (PEP)

I have to say that I would give a slight edge to Coca-Cola for the dividends. It has a slightly higher dividend yield and while its 5 year growth is a bit lower, I think that is mainly because Pepsi had offered low dividend growth for a long time. When you take a look at the dividend payouts of these two stocks, it becomes clear that the patterns of Coca-Cola seem:

-More sustainable
-More systematic

Edge: Coco-Cola (KO)

Company Metrics

First off, take a look at the numbers:

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I think the advantage is fairly significant in favor of Pepsi here. The company has better sales growth, earnings growth, a lower P/E, a lower payout ratio and a superior return on equity. I would consider the margins growth and debt to capital ratios to be more or less the same.

Edge: Pepsi (PEP)

Stock Metrics

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Not much of a difference here, Coca-Cola has a small edge on volume but not enough to become a factor. In terms of trend analysis, Coca-Cola has a major advantage but it is not enough to to make a long term change in my opinion. It would simply mean that I might trade more quickly into Coca-Cola right now than Pepsi.

Edge: None

Industry Metrics & Fit within portfolio

These two sets of criteria are usually a very important portion of the analysis but not in this specific case because both have an almost identical situation. They are in the same industry, are basically an oligopoly as both are giants with little threats from smaller players and since they are both in the same industry, I would consider both as either fitting your portfolio or not. Both companies are great dividend plays, they have reliable and steady businesses that have been able to consistently pay and increase their dividends…

Edge: None

The winner is….

In my opinion, Pepsi remains the better dividend play at the moment as its underlying business is in very good shape and should be able to sustain more dividend growth over time. It is a close one as expected but I would expect dividend growth to be as high as Coca-Cola if not a bit superior.

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6 Comments

  1. Comment by Zavi — November 25, 2010 @ 7:42 am

    I think this is a great idea the matchup!! Continue on your great work man!!

  2. Comment by IS — November 27, 2010 @ 12:32 pm

    @Zavi – Many thanks for the feedback!

  3. […] we want to focus on things that are bad for you, after looking at the dividend match up between Pepsi (PEP) and Coca-Cola (KO) but this time we go directly towards the two leading fast food chains; the one and only […]

  4. […] of the very popular posts on this blog in 2010 was the dividend match up between Coca-Cola (KO) and Pepsi (PEP) which is certainly a classic no matter how you look at it. I was looking at finding another match […]

  5. Comment by Vitalogy80 — January 27, 2012 @ 3:55 pm

    I’m curious how this comparison looks now…is there a good website where I could put in stocks of my choosing and then select what numbers I’m after. Primarily I’m looking at PE, PEG, Dividend Payment Ratio, Payout Ratio, 1 Year Earnings Growth, 5 Year Earnings Growith, 1 Year Dividend Growth and 5 Year Dividend Growth. Some other things to watch for would be helpful too.

  6. Comment by IS — January 27, 2012 @ 4:04 pm

    @Vitalogy – Funny you should ask, I’m working on updating this one… will be either on the blog within 7-10 days or in the mailing list next week.

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