Procter & Gamble (PG +0.20%) and Coca-Cola (KO +1.37%) have long been bastions of bountiful dividend income for investors. With the stocks of consumer-goods giant and soda king currently yielding 3.2% and 3.1%, respectively, that remains the case today.
Which of these dividend dynamos is the better buy? Let's find out.
Image source: Getty Images.
Financial fortitude
Let's take a look at some key metrics to see how Procter & Gamble and Coca-Cola stack up in regards to financial strength.
|
Metric |
Procter & Gamble |
Coca-Cola |
|---|---|---|
|
Revenue |
$65.73 billion |
$37.31 billion |
|
Operating income |
$14.05 billion |
$7.54 billion |
|
Operating cash flow |
$14.04 billion |
$7.99 billion |
|
Free cash flow |
$10.19 billion |
$6.10 billion |
|
Cash |
$18.76 billion |
$27.36 billion |
|
Debt |
$37.73 billion |
$49.17 billion |
Data sources: Morningstar, Yahoo! Finance.
P&G and Coca-Cola are both cash-generating machines. But P&G produces about 70% more operating and free cash flow, so I'll give the consumer-goods titan the edge here.
Advantage: Procter & Gamble.
Growth
Coca-Cola and P&G have seen their revenues decline at similar rates in recent years. Weak soda sales in developed markets have dented Coca-Cola's results, but much of its sales decline can be attributed to its decision to refranchise its bottlers.
P&G, meanwhile, is facing intensifying competition from e-commerce-based rivals. Yet like Coca-Cola, a large portion of its revenue decline is due to asset sales, conducted as part of its brand divestiture program, which is now mostly complete.
PG Revenue (TTM) data by YCharts.
However, over the next five years, Wall Street expects P&G to increase its earnings per share at an annualized rate of about 7.5%, fueled by its cost-cutting initiatives and renewed organic growth. During this same time, Coca-Cola's earnings per share (EPS) are forecast to grow less than 5% annually, driven mostly by its margin-expansion initiatives. In terms of expected future earnings growth, P&G comes out ahead.
Advantage: Procter & Gamble.
Valuation
No better-buy discussion should take place without a look at valuation. Let's check out some key value metrics for P&G and Coca-Cola, including price-to-free-cash-flow (P/FCF) and price-to-earnings (P/E) ratios.
|
Metric |
Procter & Gamble |
Coca-Cola |
|---|---|---|
|
P/FCF |
21.24 |
33.14 |
|
Trailing P/E |
22.90 |
45.71 |
|
Forward P/E |
18.91 |
23.61 |
Data sources: Morningstar, Yahoo! Finance.
On all three metrics, Procter & Gamble's stock is considerably less expensive than that of Coca-Cola. This makes P&G the better bargain.
Advantage: Procter & Gamble.
The better buy is...
It's a clean sweep for P&G. With its stronger financial position, superior growth prospects, and more attractively priced stock, Procter & Gamble is the better buy today.
