Dividend Stock Battle: Coke vs. Pepsi

Includes: KO, PEP
by: The Dividend Guy

Last week, we looked at 2 very interesting dividend stocks: Coca-Cola (KO) and PepsiCo (PEP). Two huge companies, two popular beverage marketers, two dividend aristocrats! What can we really except from this dividend stock battle? The fight of the Titans! So who’s gonna win with a KO?

KO and PEP last week’s results

While I was doing both stock analyses last week, the 2 dividend payers disclosed their Q2 results. First off the dividend news:

  • KO declares an increased dividend of $0.47 (+6.8%) per share payable on Oct 1st.
  • PEP declares an increased dividend of $0.515 (+7%) per share payable on September 30th.

So if we look at the recent dividend increases, both companies show some very interesting dividend perspectives. In fact, I think you can’t go wrong when you pick dividend aristocrats.

However, KO financial results were more welcomed by Wall Street than PEP’s. The main reason was the notice of caution for upcoming quarters disclosed by PEP. Due to economic uncertainty, PEP is warning that Q3 & Q4 may be challenging. On the other hand, KO doesn’t seem to be that worried. I guess this is the benefit of being the leader of your industry.

Concentration Vs Diversification

As I mentioned last week, both companies are facing a “health challenge”. With some of their major brands such as Coca-Cola, Pepsi, Doritos, etc., both companies are not offering the healthiest products on the market.

While PEP moved faster to bring on board some “healthy” acquisitions, KO now understands the critical challenge and is also aiming at healthier markets. This will be a great battle in the years to come.

I would put my 5 bucks on KO since they have decided to use their distribution structure and provide more beverages. Pepsi is doing the same thing but offers several other products alongside their popular carbonated drink.

While it is comforting to count on diversified sources of income and interesting to do cross promotion (like a Pepsi and Doritos combo), I think that Coke has a better grasp on their cost structure by managing mainly beverages. Pepsi could make a few mistakes while trying to combine their beverage and food brands through their distribution channels.

Final Thoughts on KO vs PEP

Honestly, I find it very hard to choose one and not the other. Both companies are showing solid financial statements and great dividend histories. I would be tempted to select KO if I had to pick a winner but I’ll eventually have both stocks in my portfolio.

Disclosure: Small update as of the end of July 2011: I recently purchased shares of KO and will update my dividend holdings pretty soon in order to reflect my latest trades.