A Closer Look at Coca-Cola's and PepsiCo's Total Cash Returns

Coca-Cola (NYSE: KO  )  recently announced a 9% increase in its quarterly dividend payment from $0.28 per share to more than $0.30 per share. The annualized dividend payment has reached $1.22 per share, equivalent to around a 3.3% dividend yield. Meanwhile, Coke's global peer PepsiCo (NYSE: PEP  )  offers a lower dividend yield to shareholders, at only 2.9%.

Source: http://www.flickr.com/photos/fooleditorial

Coca-Cola's huge cash return to shareholders
Coca-Cola's long-term shareholders are quite familiar with the company's consistently rising dividend payment. This time marked Coca-Cola's 52nd consecutive quarterly dividend hike. Furthermore, more cash will be returned to its shareholders via the company's ongoing buyback program, supported by its strong cash flow generation.

In 2013, Coca-Cola generated $10.5 billion in operating cash flow, and it returned as much as $8.5 billion of cash to shareholders via both dividends and share repurchases. Out of the $8.5 billion, around $3.5 billion, or more than one-third of the total cash return, came from share buybacks. Its 2013 share-buyback amount was 15% higher than the previous year, driven by the cash inflows from a bottling business divestment. Thus, investors should expect a lower cash return in 2014.

Indeed, the company plans to increase capital investments to between $2.5 billion and $3 billion to strengthen overall brands and accelerate business growth; and the total share-repurchase amount will also be $2.5 billion-$3 billion. With the assumed $1.22 annual dividend per share and a $3 billion buyback, Coca-Cola yields 5.1% for shareholders.

PepsiCo offers a juicier cash-return yield
In contrast, PepsiCo increased both dividend payments and share repurchases by 35% to $8.7 billion in 2014. The company raised its share-buyback target by 67% to $5 billion, accounting for around 4% of its total market capitalization. Impressively, the total cumulative 10-year cash return will reach more than $60 billion after a 35% increase. With a total market capitalization of $120 billion, an $8.7 billion cash return would yield a juicy 7.2% for shareholders.

Green Mountain Coffee Roasters accelerates Coca-Cola's 2020 Vision
Coca-Cola considered 2013 an unusual and challenging year, but it stayed committed to a 2020 Vision to double its system revenue, increase system margins, and more than double servings to 3 billion-plus a day. One of its actions to realize the company's 2020 Vision was the recent global partnership with Green Mountain Coffee Roasters (NASDAQ: GMCR  ) . Coca-Cola also bought about a 10% stake in Green Mountain for around $1.2 billion.

Source: http://www.flickr.com/photos/fooleditorial

Coca-Cola sees this partnership as a real game-changing innovation in the non-alcoholic beverage industry. Green Mountain, with its Keurig single-serve system, could provide Coca-Cola with a new platform for consumers to enjoy the cold beverage via in-home preparation. It also created a new distribution channel with huge growth potential. In return, Coca-Cola's global brand combined with strong distribution channels and marketing initiatives will boost Green Mountain's Keurig Cold in-house, single-serve system.

Worth holding in the long run?
Coca-Cola will deliver decent growth in the long run, driven by its global leadership position, global distribution channel, and the commitment to reach its 2020 Vision. Coca-Cola is valued at only 16.4 times its forward earnings, just a bit more expensive than PepsiCo, with a forward earnings valuation of 16. With a total forward cash-return yield of 5.1%, income investors could feel safe investing in Coca-Cola and holding this stock for the long term.

In order to get rich, let's follow the best
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2859554, ~/Articles/ArticleHandler.aspx, 8/21/2014 12:50:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement