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It is an age old question Coke or Pepsi? Well, for the record I prefer the taste of Coke over Pepsi. However which stock makes more sense from an investment perspective?

The current price earnings ratio for Pepsi (NYSE:PEP) is 18.71, which is a bit more expensive than Coca-Cola (NYSE:KO) with a ratio of 13.24. Looking at the end of year guidance for 2011, Pepsi actually looks a bit cheaper than Coca-Cola based on a price earnings ratio. Looking at projections from S&P, Pepsi’s earnings will be about $4.50 for the year while Coke will come in at $3.88. Based on the current stock price, the P/E for Pepsi would be 15.54 and Coca-Cola would be 17.70.

Dividends

Both companies pay a good dividend of just under 3%. Pepsi pays an annual dividend of $2.06 per share or 2.9% while Coca-Cola pays a yearly dividend of $1.88 or 2.7%. Both companies have a long history of increasing dividends year after year. In fact, Coca-Cola has increased the dividend for 49 consecutive years and Pepsi has done the same for 39 straight years.

Products

Both companies have a well diversified line of products. Coca-Cola focuses on its line of beverages, while Pepsi has a bit more diversification with beverages and foods like Frito Lay and Quaker.

Coca-Cola has 15 different brands which each bring in over a billion dollars. Some of the more popular ones are Coca-Cola, Diet Coke, Fanta, Sprite, Coca-Cola Zero, Vitaminwater, Powerade and Minute Maid.

Pepsi has 19 different brands, which each bring in over a billion dollars in revenue and include Pepsi-Cola, Mountain Dew, Lay's, Gatorade, Tropicana, 7Up, Doritos, Lipton Teas, Quaker Foods, Cheetos and Fritos.

Revenue and earnings growth

In 2010, Pepsi had revenue growth of 33.79% and a 6.59% increase in income over the last year with an average three year revenue growth of 12.14% and income of 4.98% according to Standard and Poors.

Coke had a 13.32% revenue growth and a 73.05% income growth in 2010, although the yearly net income is a bit skewed due to the recent one time transaction with Coca-Cola Enterprises (NYSE:CCE) for $822 million. The company's average three year revenue growth was 5.75% with 24.64% for income.

The average price to sales ratio for Coca-Cola over the last four years is 4.23 compared to Pepsi with a ratio of 2.31. Coca Cola does trade at a premium; however this may be attributed to its higher net margins which have a four year average of 25.89% over Pepsi’s 12.48%. Pepsi has lower margins due to less profitable ventures in the food business like Frito Lay, Quaker Foods and other brands.

The Bottom Line

So which stock is the better investment? Over the long term both stocks are a buy because of their revenue growth over time and the consistent increase in dividends. For the near term I actually like Pepsi because it is more diverse and has a higher dividend. Coca-Cola does trade at a bit of a premium and the stock deserves it because of the higher margins, however I don’t see as much upside with Coke, at least in the short term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Dividend Investor Taste Test: Coke vs. Pepsi