Last week, we looked at 2 very interesting dividend stocks: Coca-Cola – KO and PepsiCo – PEP. 2 huge companies, 2 popular beverage marketers, 2 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 through 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 beside 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 take 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.
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.
KO is the winner for me. The current snap shot based on today’s data is good and the companies are aristocrats but if I look and compare the 5 year history between the two companies, PEP is flat and KO is up. I prefer to own a company that can add value at this point.
Now, PEP can be a contrarian investment though …
I have more PEP than KO! The contrarian gamble hasn’t paid off …yet!
They are both great companies and I think will pay off well for anyone over the long term. I prefer KO though – for one, in terms of their main brands, PEP is always chasing KO. Coke is a slang term for all cola – no one ever asks for a jack and pepsi.
Second, PEP is moving into a major marketing campaign to revive the Pepsi brand, which has fallen off lately. Coke has never forgotten their moneymaker, and that red and white label is just so mesmerizing…
@MoneyCone,
in the meantime, you can enjoy the dividend!
@Dividend Pig,
Did you know that where I live, Pepsi is more popular? I guess Quebec is the only place in the world where they sell more Pepsi than Coke! haha!
Just read an interesting post over at http://www.dividendninja.com/ on the payout ratio and wondered if maybe this would tilt the meter in favor of KO for some investors for these two very similar companies. You presented an interesting analysis.
I love them both. I look at them as different companies. I love Coke for its domination in the carbonated beverage industry and I love Pepsi for its domination in the snack food industry. I think they’re both wonderful additions to a dividend growth portfolio and I own both. I’d like to add more KO at some point in the near future.