Few stocks have created more wealth for their long-term investors than Altria Group (MO 1.19%) and Coca-Cola (KO +0.74%). The tobacco titan and soda king excel at turning their bountiful cash flows into steadily rising streams of dividend income for their investors. And with their current dividend yields of 3.7% and 3.1%, respectively, Altria and Coca-Cola are two of the strongest high-yield stocks available in the market today.
But which of these dividend dynamos is the better buy? Let's find out.
Image source: Getty Images.
Financial fortitude
Altria and Coca-Cola are both excellent businesses. But let's take a look at some key metrics to see how they stack up with regard to financial strength.
|
Metric |
Altria |
Coca-Cola |
|---|---|---|
|
Revenue |
$19.5 billion |
$37.3 billion |
|
Operating income |
$9.4 billion |
$7.5 billion |
|
Operating cash flow |
$4.4 billion |
$8.0 billion |
|
Free cash flow |
$4.2 billion |
$6.1 billion |
|
Cash |
$2.6 billion |
$22.2 billion |
|
Debt |
$13.9 billion |
$49.1 billion |
Data source: Morningstar. Table by author.
Altria and Coca-Cola are highly profitable enterprises and reliable cash generators. Yet with almost $20 billion more cash on its balance sheet and nearly 50% more free cash flow production, Coca-Cola has the edge in terms of financial fortitude.
Advantage: Coca-Cola
Growth
Although Altria and Coca-Cola possess dominant shares of their respective markets, they are both struggling with declining demand for their core tobacco and soda products. Still, analysts expect Altria's earnings per share to rise by about 8% annually over the next half-decade, fueled by price increases and cost cuts. During this same time, Coca-Cola's EPS is projected to grow at only a 5% annualized rate, driven mostly by share buybacks and the refranchising of its bottlers. So in terms of expected future earnings growth, Altria has the edge.
Advantage: Altria
Valuation
No better-buy discussion should take place without a look at valuation. Let's check out some key value metrics for Altria and Coca-Cola, including price-to-free cash flow, price-to-earnings, and price-to-earnings-growth (PEG) ratios.
|
Metric |
Altria |
Coca-Cola |
|---|---|---|
|
P/FCF |
32.16 |
33.92 |
|
Forward P/E |
18.49 |
24.14 |
|
PEG |
2.70 |
5.22 |
Data source: Morningstar, Yahoo! Finance. Table by author.
Altria and Coca-Cola are trading at somewhat similar multiples on a trailing FCF basis. However, based on analysts' estimates for 2018, Coca-Cola's forward P/E is about 30% more than that of Altria. The difference in valuation metrics is even more pronounced when looking at their PEG ratios, which factor in their different expected EPS growth rates. Thus, based on its significantly lower forward P/E and PEG ratios, Altria is the better bargain.
Advantage: Altria
The better buy is...
Coca-Cola is a financial powerhouse, but with its superior growth prospects and more attractively priced stock, Altria is the better buy today.
