Investors can enjoy a reliable source of passive income and potentially witness long-term growth with dividend stocks. And among income investment possibilities, income Aristocrats are among the most alluring.
This group of S&P 500 companies has shown its dedication to its shareholders by increasing dividends for 25 years in a row.
Higher Current Dividend Yield
Coca-Cola comes out on top when it comes to the first factor income investors look at: the current dividend yield. Earnings per share for Coke are $0.44 each quarter, giving the stock a projected yield of 3.14 percent. But PepsiCo pays $1.15/share yearly, for a dividend of 2.98%.
Over decades of compounding, that seemingly little difference of 16 basis points becomes a large sum. Consider a $100,000 investment: over the course of 30 years, the greater return on Coke would result in dividends totaling more than $1,600 more.
More Reasonable Valuation
Total returns also take valuation into consideration. Plus, compared to PepsiCo, Coca-Cola stock is currently more affordable. Compared to Pepsi’s 27.9x earnings multiple, Coke trades at 23.8x. A smaller portion of Coke’s profits are going to investors.
Coke stock offers investors a little more cushion, even if both multiples are fairly elevated relative to historical norms.
Its premium is well-deserved, and the company’s earnings growth is proof of that. Coke has increased its adjusted earnings per share by more than 7% every year for the past five fiscal years.
Global Iconic Brand
With its sheer global scale and brand domination, Coca-Cola has a significant advantage when it comes to growth opportunities.
Forbes estimates that Coke’s total brand worth of over $80 billion places it sixth among the most valuable brands in the world. Coke products can be found in more than 200 countries across the globe.
Worldwide, the legendary Coca-Cola brand has an unparalleled amount of consumer mindshare. Coke products sell 1.9 billion servings daily to consumers.
Plus, availability is something the corporation is always working to increase, particularly in developing countries around the world. Outstanding longevity is a result of this brand equity.
Dominance In The Energy Drink Category
Energy drinks are another expanding market because of their massive popularity among younger consumers. When comparing PepsiCo’s Rockstar Energy brand to Coca-Cola’s 16.7 percent ownership in Monster Beverage (NASDAQ: MNST), the former comes out on top.
Monster has over a third of the worldwide energy drink market, whereas Rockstar has less than six percent. In comparison to Rockstar’s $720 million, Monster’s sales in the past year came to $5.5 billion. Coke gets to see the more rapidly expanding competitor.
A Top Warren Buffett Holding
Coca-Cola stock is a favorite of billionaire investor Warren Buffett’s Berkshire Hathaway portfolio.
With an incredible 400 million shares in Berkshire, Buffett has 9.8 percent ownership of Coke. At its current valuation, this holding accounts for 6.5% of Berkshire’s holdings, or more than $25 billion.
Expect Berkshire to maintain its position as a long-term Coke shareholder, considering how infrequently Buffett sells from his key assets. What this means for the future of the share price is that there is institutional support below it.
The Bottom Line
Coca-Cola has significant benefits over PepsiCo, despite the fact that both companies are dividend growth equities with a relatively low risk profile.
In particular, Coke lets you lock in total returns with a lower valuation, decent growth potential in the future, and higher income today. It is not surprising that it ranks first among dividend mainstays.