A while back, I watching an old episode of Comedians in Cars Getting Coffee, Jerry Seinfeld’s Netflix series where he drives around in fancy cars with various high-profile comedians to (you guessed it) get coffee. Jerry told a joke that was not so much funny as it was true: “If you’re Pepsi, what’s it like knowing that no matter what you do, you’ll always be second place? You’re never gonna beat them.”
The “them” to which Jerry was referring was, of course, Coca-Cola (KO). And he’s right. While the two soft drink behemoths control a combined 71% of the U.S. carbonated beverages industry, Coke’s share is nearly 20% higher than Pepsi’s, 46.3% to 24.7%. In terms of perception, I bet the breakdown is about the same; two of out of every three people probably prefer Coke.
But when comparing Coke vs. Pepsi stock, that’s more debatable.
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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 70% in the last decade – well below the 184% return in the S&P 500, though the dividend growth and high yields (currently 2.7%) help matters.
But Pepsi stock has a similar resume. It’s up 93% in the last decade, yields 3.1%, and has raised its dividend for 46 straight years.
Both trail the S&P 500 in the last year, with Pepsi stock down 1.3% and Coke up 22.1%.
In turbulent markets, investors turn to dividend-paying market stalwarts like Coke and Pepsi. But 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 price-to-earnings ratio is still slightly cheaper than Coke’s. On a price-to-sales basis, Pepsi (2.7) is markedly cheaper than Coke (6.6).
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, Pepsi reported 6% sales growth and 2% earnings growth in fiscal 2023; Coke’s 2023 sales were also up 6%, while EPS increased 13% from the previous year. For 2024, however, analysts project a 12.8% sales bump for Coca-Cola and 15.6% top-line growth for Pepsi. So, that’s advantage Pepsi.
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 $25,937 – 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 triple your money (or better!) 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.
In that respect at least, Seinfeld’s wrong. Pepsi’s just as good as Coke.
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*This post is periodically updated to reflect market conditions.
