If you’re a Coke drinker, “Is Pepsi okay?” is the most dreaded question you can hear when sitting down at a restaurant.
By that same token, Pepsi drinkers must contend with, “All we have is Coke,” should they happen to find themselves in a diner without their bubbly beverage of choice.
As much as those preferences may seem set in stone when it comes to the carbonated concoctions, both companies are losing market share to a combination of evolving customer preferences and a competitor that’s growing in popularity, namely, Dr. Pepper.
Based on 2023 sales volumes, Coke remains in first place in the cola wars, with a 19.2% share. Meanwhile, Pepsi has lost the second-place spot for the first time, falling to an 8.31% share, just behind Dr. Pepper’s 8.34% share.
Now, those figures only speak to the popularity of each company’s flagship product. When you consider the full portfolio of brands, Coca-Cola boasts a nearly two-to-one advantage with a 46.3% market share compared to Pepsi’s 24.7%.
It seems, then, that the cola wars are over when it comes to brand preference, but which is the better investment, Coca-Cola (KO) or Pepsi (PEP)?
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Coke vs. Pepsi Stock: Tale of the Tape
KO stock has long been a staple of income investors’ long-term portfolios. It’s one of the most reliable dividend stocks you can find, and a premier dividend grower (Dividend Aristocrats, they’re called), having raised its payout annually for the last 56 years. While its share price appreciation has slowed over the years, it’s still up 47% in the last decade – well below the 191% return in the S&P 500, though the dividend growth and high yields (currently 3.1%) help matters.
But Pepsi stock has a similar resume. It’s up 67% in the last decade, yields 3.4%, and has raised its dividend for 46 straight years.
Both trail the S&P 500 in the last year, with Pepsi stock down 6.5% and Coke up 7.1%.
It’s important to remember that in turbulent markets, investors turn to dividend-paying market stalwarts like Coke and Pepsi, but in strong bull markets like we’ve had for the last few years, most investors prefer high-upside growth opportunities.
That said, Pepsi has slightly outperformed, at least in the last decade, for two reasons:
1. The stock is cheaper. Even after outperforming KO stock in recent years, its forward price-to-earnings ratio is still slightly cheaper than Coke’s. On a price-to-sales basis, Pepsi (2.4) is markedly cheaper than Coke (5.9).
2. Better dividend growth. Over the past five years, Pepsi has raised its dividend by an average of 6.5% per year. Coca-Cola has raised its dividend by an average of just 3.3% per year during that time.
As for growth, analysts project a 3.8% sales bump for Coca-Cola and 3.3% top-line growth for Pepsi next year.
That said, if it’s growth you seek, I wouldn’t invest in either stock. However, if you’re investing for the long haul, let me refer you to this statistic Tom Hutchinson, our dividend expert and chief analyst of Cabot Dividend Investor, gave recently: if you had invested $10,000 in Pepsi stock 10 years ago and had the dividends reinvested, today you would have $22,448 – not a bad return, despite the fact that it has (like Coca-Cola) underperformed the market during that time.
That’s the power of dividend reinvestment. And it’s why you’d be wise to have either KO or PEP in your retirement portfolio. Buy one of them today, stash it away for 10 years … and you may nearly double your money, even with modest annual share price appreciation.
If I had to register a verdict on Coke vs. Pepsi stock today, because of the disparity in valuation and Pepsi’s generally better growth in the last few years, PEP might be a better play right now. But you’ll probably do just fine with either.
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*This post is periodically updated to reflect market conditions.
