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PepsiCo (NYSE:PEP) and Coca-Cola (NYSE:KO) are both countercyclical stocks that operate in a relatively mature and stable consumer staples industry. Both stocks are also constituents of the S&P 500 Dividend Aristocrats index, raising their dividends for at least 25 consecutive years. Furthermore, they both pay attractive dividend yields that well exceed the yields on the 10-Year Treasury bond and the S&P 500 index. While PepsiCo's current dividend yield of 3.0% is higher than that of Coca-Cola's 2.5%, does PepsiCo represent a better dividend stock than Coca-Cola?

To answer this question, investors should focus on total returns and analyze the contributions to total returns from both dividends and the stocks' price appreciation. Ten years ago, both PepsiCo and Coca-Cola had dividend yields of around 1.6%. Over the following ten-year period, PepsiCo increased dividends at an average annual rate of 13.7%, while Coca-Cola increased its dividends at a rate of 9.8% per year. Clearly, PepsiCo's dividend growth exceeded that of Coca-Cola over the past ten years. Nevertheless, over the same time horizon, PepsiCo hardly beat Coca-Cola in terms of total returns. Including dividends, PepsiCo's annualized returns averaged 8.4% per year over the past ten years, while Coca-Cola's returns were slightly lower at 8.1% per year. It should be noted, however, that there were extended periods during that ten-year investment horizon in which PepsiCo outperformed Coca-Cola.

However, since 2010, growth in Coca-Cola's stock price has significantly exceeded growth in the PepsiCo's stock price. In terms of total returns, that strong growth was a reason for Coca-Cola's outperformance relative to PepsiCo over a five-year period. Coca-Cola's strong price appreciation is also partly responsible for the company's lower dividend yield than PepsiCo's. Thus, over a five-year investment horizon, despite PepsiCo's marginally higher dividend growth (8.5% per year vs. 8.4% per year for Coca-Cola), Coca-Cola produced a much higher total return, of 11.94% per year versus 4.84% per year for PepsiCo. Investors in Coca-Cola who had held their shares for the past five years and liquidated would have fared better than PepsiCo investors over the same time horizon.

There are several explanations for this outcome. One is clearly a stronger earnings-per-share (EPS) growth for Coca-Cola over the observed period. The company's EPS over the past five years grew at an average rate of 11.3% per year, while PepsiCo's EPS increased at an average rate of 3.8% per year. On the other hand, initially, PepsiCo was more favorably priced, but that advantage dissipated over time. Now, both stocks are fairly priced relative to their EPS growth. Coca-Cola has a forward P/E of 18.5x and EPS growth of 9% for the next year. PepsiCo boasts a forward P/E of 16.5x and EPS growth of 8.4% for the next year.

If EPS growth is a good indicator of future total returns, Coca-Cola's higher forecasted EPS growth may suggest continued outperformance in the future. Over the next five years, Coca-Cola is expected to produce EPS growth of 7.5% per year, while PepsiCo's EPS growth will average 6.4% per year. Both companies are capable of raising their dividends at higher rates in the future, as their dividend payout ratios hover around 54% for Coca-Cola and 57% for PepsiCo. Given that PepsiCo's current dividend yield is 50 basis points higher than Coca-Cola's, this year PepsiCo raised its dividend by a much smaller 4.0%. Coca-Cola raised its dividend by 8.5% in February 2012. PepsiCo's lower dividend hike likely suggests a much slower dividend growth in the future. This, coupled with a lower EPS growth, could indicate a continued relative outperformance of Coca-Cola in the future.

While Coca-Cola has a return on invested capital of 17.9%, currently higher than PepsiCo's 14.4%, PepsiCo is undergoing a major transformation that could raise its returns higher in the future. While Coca-Cola is expanding its geographical reach throughout emerging markets, PepsiCo is entering new product markets, such as those for high-growth nutritional products like yogurt, and is reinventing traditional products with new technologies, for example, such as that for potato chips that makes them taste saltier even without adding any new sodium. These new initiatives may be weighing on PepsiCo's current performance. However, if they succeed, they could be catalysts for higher growth in the future.

A value investor Donald Yacktman, who holds the largest non-index-fund holding in PepsiCo, believes that the company has better value than Coca-Cola. He likes the snacks company's business model and sees its excellent risk-adjusted forward rates of return. On the other hand, at the end of the first quarter, legendary investor Warren Buffett had nearly $15 billion or almost 20% of his 13F portfolio value allocated to Coca-Cola.

This only suggests that both companies represent good income (and potentially value) investments in the current yield-starved environment. They are both high-quality, rock-solid companies with strong free cash flow generation and the capacity and willingness to increase shareholder value through dividends and share buybacks.

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