With the latest return of volatility within the inventory market, traders have fallen again in love with sturdy shopper staples companies — particularly those that pay out predictably rising dividends. PepsiCo (NASDAQ: PEP) has been a kind of relative winners thus far in 2025, with shares up barely even because the S&P 500 index dropped 5%. Let’s take a more in-depth take a look at that beverage and snack meals large to see the way it stacks up in opposition to its principal drink rival, Coca-Cola (NYSE: KO).
Progress and outlook
Coca-Cola is the clear progress winner, regardless of shoppers turning into extra price-sensitive up to now 12 months. Natural gross sales rose 14% in the newest quarter, trouncing PepsiCo’s 2% uptick. The beverage large is projecting one other strong 12 months forward as natural income expands by between 5% and 6%. PepsiCo’s administration workforce, alternatively, forecast one other 12 months of low-single-digit income positive aspects in 2025 after natural gross sales rose by simply 2% final 12 months.
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Buyers shall be watching each corporations’ outcomes for indicators of inflation fatigue. That is extra of a problem for PepsiCo, although, because of its publicity to rising meals ingredient costs. Its gross sales quantity fell by 1% final quarter, in comparison with Coca-Cola’s 2% uptick. Coca-Cola was additionally in a position to elevate costs extra aggressively in 2024 whereas maintaining quantity in constructive territory. These components recommend that Coca-Cola has a clearer path towards enhancing shareholder returns in 2025 and past.
Money circulation and returns
Each PepsiCo and Coca-Cola promise to reward traders with ample money returns this 12 months, because of their environment friendly companies. PepsiCo is planning to spend $7.6 billion on dividends in 2025, together with $1 billion in inventory buyback spending.
Coca-Cola executives additionally favor dividends as their principal channel for money returns. They spent $8 billion on dividend funds final 12 months and $1.1 billion on inventory buybacks. But PepsiCo delivers the next yield at 3.55% right now in comparison with Coca-Cola’s 2.7% charge. Each corporations hiked their dividend by the identical 5% in 2025. Because of this, earnings traders may choose PepsiCo shares for his or her increased yield and engaging money circulation traits.
The value is correct
You may pay a premium to personal Coca-Cola inventory over PepsiCo, however the true query is whether or not it is price the additional worth. PepsiCo shares are buying and selling at 18 occasions this 12 months’s anticipated earnings, in comparison with Coca-Cola’s forward price-to-earnings (P/E) of 24. You see an identical valuation hole by way of gross sales, with Pepsi buying and selling at 2.3 occasions income to Coca-Cola’s ratio of 6.5 occasions.
Components supporting Coca-Cola’s premium embrace its quicker progress, as talked about above, but additionally its stellar profitability. The beverage large’s working revenue margin is a blazing 30% of gross sales, greater than double PepsiCo’s 14% charge.
KO Operating Margin (TTM) information by YCharts.
The primary causes to choose PepsiCo’s inventory over Coca-Cola’s are its cheaper valuation and better yield. But most traders will wish to select Coca-Cola for his or her portfolios right now. Its beverage enterprise dominates the business, and that success reveals up in pricing energy, excessive revenue margins, and quicker gross sales progress. There is not any denying the steadiness of its earnings energy, both, as the corporate simply introduced its 63rd consecutive annual dividend improve. That payout provides Coca-Cola a chief spot within the unique membership of Dividend Kings, or corporations which have raised their dividends for a minimum of 50 consecutive years.
It is OK to pay the next value for such a well-performing, financially sturdy enterprise. Coca-Cola wins this investing matchup.
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Demitri Kalogeropoulos has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
