Both Philip Morris International (NYSE:PM) and Coca-Cola (NYSE:KO) have built up powerful brands that are known across the globe. Worldwide business exposure has given these two consumer products giants huge growth opportunities over time, but more recently, they've also presented challenges because of sluggish global macroeconomic conditions and currency-related headwinds. With new signs of a possible recovery from those adverse conditions, investors want to know which of these stocks is the smarter pick right now. Let's take a closer look at Philip Morris and Coca-Cola, using several key metrics to give a view of which one looks more attractive right now.

Image source: Philip Morris International.

Valuation and stock performance

In terms of total return, only Philip Morris International has managed to produce a positive return over the past 12 months. The tobacco giant has given shareholders about 6% in price appreciation and dividend payments, compared to a slight 2% drop for Coca-Cola's total return over the past year.

Yet even though Coca-Cola has lost ground compared to Philip Morris, the beverage king still has more expensive valuations when you look at some simple metrics based on price-to-earnings ratios. Coca-Cola currently trades at nearly 25 times trailing earnings, compared to an earnings multiple of just 21 for Philip Morris. When you incorporate future earnings expectations into the mix, the disparity narrows a bit, but Philip Morris retains an edge. The tobacco company trades at a forward earnings multiple of 18, compared to Coca-Cola's valuation of nearly 21 times forward earnings. Philip Morris provides better recent returns and a less expensive reading on earnings multiples, and that makes it look better than Coca-Cola by this measure.


Consumer products companies often pay good dividends, but Philip Morris and Coca-Cola both stand out even from the consumer-stock crowd. Coca-Cola sports a yield of 3.4%, which is well above the average among its peers in the Dow Jones Industrials. Philip Morris has an even higher dividend yield of 4.6%, making it look better to those seeking current income. Both have fairly high payout ratios, sharing most of their earnings with shareholders in the form of dividends. Yet Coca-Cola has a bit more breathing room on that front than Philip Morris, with the beverage company paying out almost 85% of its earnings on a trailing basis compared to very close to 100% for Philip Morris.

For those seeking dividend growth, Coca-Cola has an edge, but it's largely because of Philip Morris' status as a newly independent company. Coca-Cola has boosted its dividend each and every year for 54 years running, with its most recent 6% increase in its quarterly payout coming early in 2016. Philip Morris has built up a solid record of paying higher dividends each year since its 2008 IPO, and its former parent company has an equally impressive streak that spans back nearly half a century. However, Philip Morris' increases lately have been modest, with two straight years of 2% increases in the quarterly payout. Some will find Philip Morris' current yield to be a big advantage, but the two are both strong stocks on a dividend basis.

Growth prospects and risks

In terms of growth, Philip Morris and Coca-Cola have faced challenges and sought ways to deal with them. Philip Morris has started to see things turn around, with the strength in the U.S. dollar having finally hit a lull. In its most recent quarter, Philip Morris posted a modest 1% rise in revenue net of excise taxes, and the company managed to see a 2% rise in earnings after a period of year-over-year declines in some of its previous quarters. However, even though foreign currency impacts have largely disappeared, Philip Morris suffered a large decline of more than 5% in cigarette shipment volumes, with particular weakness in Latin America, Canada, and the Asian region. Reduced-risk products like its iQOS heat-not-burn technology could be a path to future growth, with early results in Japan being very promising in producing a fast-growth trajectory.

Meanwhile, Coca-Cola has faced more difficulties recently as it goes through a major corporate transition. In its most recent quarter, revenue fell 7%, with net income plunging by nearly a third as the company made numerous divestitures and structural changes, especially with respect to its bottling operations. Organic revenue, however, grew 3%, with most of the strength coming from the non-carbonated beverage unit. Sparkling beverages like its namesake cola remain weak, with flat case volume stemming from a 2% drop in Latin American shipments. Coca-Cola has made progress with its effort to produce $3 billion in annual cost savings, but concerns about reduced demand for sugary drinks had CEO Muhtar Kent present a risk if the company can't find a good way of balancing changing consumer preferences with the need to avoid missteps like its New Coke reformulation disaster in the 1980s.

Philip Morris International has an edge over Coca-Cola based on these three factors. With higher dividend yields, lower valuations, and an arguably clearer path to future growth, the tobacco company looks like the better buy right now compared to the beverage specialist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.