Pepsi May Never Catch Coke as the Premier Soda Brand. But Pepsi Stock Already Has.

I was recently 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 68% of the U.S. carbonated beverages industry, Coke’s share is nearly double Pepsi’s, 43.7% to 24.1%. 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 61% in the last decade – well below the 275% return in the S&P 500, though the dividend growth and high yields (currently 3.2%) help matters.

But Pepsi stock has a similar resume. It’s up 146% in the last decade, yields 2.9%, and has raised its dividend for 46 straight years.

Here’s where the two soda stocks differ: while both trail the S&P 500 in the last couple years, Pepsi stock is up 9% in the last year and 7.8% in the last two years; KO stock is actually down in the last two years.

In turbulent markets, investors turn to dividend-paying market stalwarts like Coke and Pepsi. But Pepsi has outperformed, for two reasons:

1. The stock is cheaper. Even after outperforming KO stock for the past two years, its price-to-earnings ratio (26) is still a bit cheaper than Coke’s (28). On a price-to-sales basis, Pepsi (2.8) is markedly cheaper than Coke (6.4).
2. Better dividend growth. Over the past five years, Pepsi has raised its dividend by an average of 9.8% per year. Coca-Cola has raised its dividend by an average of just 5.6% per year during that time.

As for growth, Pepsi reported 20% sales growth and 43% earnings growth in its latest quarter; Coke’s sales were up 5%, while EPS declined 19% from the previous year. However, for the full year analysts predict 15% sales growth for Coke and just 9.5% for Pepsi, so there really isn’t much difference.

Besides, 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 $28,815 – not a bad return, despite the fact that it has (like Coca-Cola) underperformed the market during that time.

PEP Trending Better

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, because it has better relative performance of late, 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.

So, what do you say in regards to Coke vs. Pepsi Stock, which have you found is better?

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*This post has been updated from an original version, published in 2020.