Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) are two of the largest consumer brand companies in the world. These two companies stand at the top of the soft drink industry, making them staples in the homes of billions of people worldwide.
We examine which of these two stocks is the better investment for 2025 and beyond.
PepsiCo
Pepsi had a somewhat slow year in 2024, but the company was still able to increase its organic revenues by 2% while raising its earnings per share 9% on a constant currency basis to $8.16.
Management expects similar trends to prevail in 2025, with low single-digit revenue growth and mid single-digit EPS growth projected as ongoing measures to increase productivity continue to bear fruit. On a 5-year timeline, analysts expect Pepsi’s EPS to grow at a compounded rate to stabilize at 4.9%.
PepsiCo’s stock is trading at 21.4 times earnings and 2.2 times sales, both reasonable levels for value investors, but PEP’s price-to-earnings-growth ratio is over 3.0, which is traditionally a strong signal of overvaluation. As such, investors may very well be paying too much for Pepsi’s future earnings today.
One area where Pepsi does very well is its dividend that now yields 3.7% and pays $5.33 annually. Pepsi’s payout ratio is a bit high at just over 75%, but investors are unlikely to see the company break its dividend growth streak anytime soon. Pepsi has been raising its dividend for over 50 years, and the growth rate over the past 10 years has averaged 7.5%.
There’s no doubt that PepsiCo has carved out a place for itself as a snack food company. Brands owned by the company include Doritos, Lay’s, Fritos and Cheetos. This focus on snacks gives PepsiCo a bit of extra diversification, but it also exposes the company to higher food input costs that could pressure the bottom line of this part of its business.
Coca-Cola
Coca-Cola has been one of the best long-term investments in American stock market history. The beverage company is currently coming off of a very strong 2024, with organic revenues up 12% and net revenues up 3%. On a non-GAAP basis, EPS grew by 7%. GAAP EPS, however, experienced a slight decline last year.
Coca-Cola remains very profitable, though GAAP earnings fell recently. Management reported net margin last year pf 22.6% and operating margin of 24.8%. Coca-Cola also offered a 14.9% return on invested capital, which ranked well against the 10.4% delivered by Pepsi.
Coca-Cola trades at higher multiples than Pepsi, sporting a P/E ratio of 28.0 and a price-to-sales ratio of 6.4. These multiples, however, are likely justified by its slightly higher potential for future growth. Over the next five years, analysts foresee Coca-Cola’s EPS rising at 6.0% annually, about 1% more than Pepsi’s.
While KO doesn’t offer quite as high a dividend as PEP does, the stock still deserves the reputation of being an incredible long-term dividend income producer. Coca-Cola has been raising its dividend annually for over 60 years and today yields 2.8%.
The cola manufacturer’s payout ratio is comparable to PepsiCo’s, though its trailing 10-year dividend growth rate is substantially lower at 4.7%.
The alcoholic beverage portfolio is a segment shareholders have clued in on as a growth lever for Coke in coming years. It has already seen some success in the ready-to-drink alcoholic beverage market and is growing its market share.
In September, for instance, Coca-Cola announced plans to work together with Bacardi on a new line of ready-to-drink cocktails. The company had previously worked with Brown-Forman on a similar RTD based on the Jack Daniels whiskey brand.
Pepsi Vs Coke Stock: Which Is Best?
Pepsi has 10% upside to fair value of $163 per share, making it the more attractive stock versus Coke that has 6.6% downside risk to analysts consensus price target of $64.78 per share.
Right now, both PEP and KO could be appealing buys as high-yield consumer stocks with premium brands and long payout streaks.
Ongoing share buybacks are a tailwind for shareholders of both Coke and Pepsi. Other than a single quarter when share count increased year-over-year, PepsiCo has been lowering outstanding share figures since 2011.
Coca-Cola’s overall trajectory has been similar, though it did become a modest net issuer of shares from 2019 through 2022. In both cases, a long-term trend of buying back shares has allowed the companies to concentrate ownership among shareholders and raise their EPS.
Over the longer term, Coca-Cola is likely the stronger investment between the two companies for most portfolios. KO’s higher expected growth rate over the next several years could outweigh the higher prices the stock sells for.
While it may not be as high as Pepsi’s, Coke’s dividend is also more than strong enough to be worthwhile. Coca-Cola’s higher net margin is another fundamental advantage, as the company can expect to earn more from every dollar of revenue it generates than Pepsi.
Coca-Cola also enjoys one of the strongest moats imaginable thanks to its iconic brand and its place in the minds of consumers. Every day, the company claims to sell about 1.9 billion servings of its various drinks. Although PepsiCo is creating a fairly solid moat for itself in the fast-growing African market, it’s quite unlikely that it will ever be able to match Coca-Cola’s sheer brand advantage worldwide.
Pepsi doesn’t have Coca-Cola’s strength in the growth category, but it may still appeal more to investors seeking immediate income from their portfolios. With a higher yield and comparable payout ratios, Pepsi appears to be a better choice for current income. As such, investors who are more focused on dividends than growth may find a place for PEP in their portfolios despite KO’s better characteristics in other areas.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
