Coca-Cola vs. PepsiCo., Which Stock is the Better Play?

When consumers are asked the question, Coke or Pepsi, it’s a matter of taste. But tastes are starting to change? It’s no surprise that carbonated beverages are starting to fall out of favor. Consumers are becoming more mindful of what they put into their body. And that’s meant that both companies have had to retool their business models to take into account these changing tastes.

This means when investors are asked the same question, there are many things to consider aside from personal taste. And while both Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) are consistent, blue-chip stocks, there is one that looks like a better play right now.

Will the Real Beverage Company Please Stand Up?

One of the problems with comparing the two companies is that both have moved far beyond being simply “soft drink” companies. However, whereas Coke remains firmly rooted in the beverage category, Pepsi has diversified into many other areas in the snack food category. In fact, so far in 2020 the company gets more revenue from its food products (54%) than its beverage products (46%).

This works to Pepsi’s advantage because carbonated drinks are a very mature market. According to a Netscribes report, the global market for carbonated beverages is only scheduled to grow at a 2.8% compound annual growth rate (CAGR) through 2023.

This is not to say that Coke is only relying on carbonated beverages to win the day. The company has a broad beverage portfolio that includes coffees, teas, juices, and water. But the company remains at this point wholly a beverage company.

Advantage: Pepsi

Both Companies are Dividend Darlings

One of the reasons to invest in blue-chip companies like Coca-Cola or PepsiCo is for a secure, growing dividend. And in that regard, neither company disappoints.

First, let’s look at Coke’s dividend. The yield at the time of this writing is 3.52%. The company has increased its dividend in each of the last 57 years and has a payout ratio of 77.73% of earnings.

Pepsi, however, makes an equally compelling case. The company has a current dividend yield of 3.10%. It has increased its dividend in for 47 consecutive years and has a payout ratio of 73.96% of earnings.

Advantage: Draw

Revenue or Net Income – What’s Your Flavor?

One of the key distinctions between the two brands is when you look at where the companies are putting their emphasis. In the case of Pepsi, the company has shown solid revenue growth over the last few years. However, the company’s net income has been somewhat uneven.

The opposite is true for Coca-Cola. The company has shown increasing net income for the last few years, but the company has been seeing declining revenue. In fairness, both companies are likely pursuing strategies that give the greatest advantage to their shareholders.

Coca-Cola is expected to close the revenue gap with Pepsi in the short term. It’s really a coin flip, but since revenue can be a fickle beast, you have to appreciate a company that’s continuing to generate high net income in what can be a low margin business.

Advantage: Coca-Cola

Which Stock Will Reward You More a Year From Now?

I tend to have a more long-term focus to my investing, but when it comes to two stocks that are as evenly matched as these two giants, you have to narrow your focus a little bit. The novel coronavirus that has spawned a global health emergency is affecting both companies.

However, I believe that when you look at the landscape for the rest of 2020, many restaurants are still going to be under pressure. And to be fair, many restaurants that closed will not be reopening. That dynamic hurts Coca-Cola more than Pepsi.

 And that’s reflected in the stock performance of the two companies. In a year where being less bad is pretty good, Pepsi is clearly outperforming the broader market. This is a heavyweight fight that still has many rounds to go, but given Pepsi’s more diverse revenue stream, I see it as a better option as the global economy enters its recovery phase.