For decades, PepsiCo (NASDAQ:PEP) and Altria Group (NYSE:MO) have rewarded investors with hefty cash dividend payouts. With their stocks currently yielding 3.2% and 5.9%, respectively, that remains true today.

But which of these dividend powerhouses is the better buy now? Let's find out.

A sign labeled dividends next to a roll of 100 dollar bills

Image source: Getty Images.

Moat

Altria's once unassailable economic moat is under attack from a slew of new threats. The tobacco king is losing market share to e-cigarette upstarts, and the legalization of marijuana threatens to pull spending away from Atria's core tobacco products and toward new cannabis-based goods.

Altria, however, is not simply standing idle as this occurs. The company recently acquired a 45% stake in marijuana company Cronos Group (NASDAQ: CRON). It's also reportedly seeking to purchase a stake in leading electronic cigarette manufacturer Juul Labs. So while e-cigarettes and marijuana could be viewed as threats to Altria's traditional tobacco business, they could also represent large new growth opportunities for the company.

A marijuana leaf on top of a $100 bill

The booming marijuana market has Altria seeing green. Image source: Getty Images.

Like Altria, Pepsi is facing significant challenges. Most notably, soda sales are falling in the U.S and many other areas of the world, as consumers shift away from high-sugar and artificially sweetened beverages.

Yet Pepsi has been successfully dealing with this challenge for many years. To mitigate the impact of the trend away from soda, Pepsi has diversified its beverage lineup to include bottled water, tea, juice, and sports drinks. Pepsi is also a global leader in snack foods, with popular brands such as Doritos, Lays, Tostitos, Cheetos, and Quaker Oats, among others.

All told, while Atria is making the right moves to position itself within new growth markets, Pepsi's diverse revenue streams provide a greater degree of protection from competitive threats. Thus, I'd argue that the soda and snack colossus has the wider moat.

Advantage: Pepsi.

Financial fortitude

Let's now look at some key financial metrics to see how Pepsi and Altria compare.

Metric

PepsiCo

Altria

Revenue

$64.66 billion 

$25.35 billion 

Operating income

$10.48 billion

$9.58 billion

Operating cash flow

$8.64 billion

$7.34 billion

Free cash flow

$5.57 billion

$7.16 billion

Cash

$13.90 billion 

$2.39 billion 

Debt

$35.12 billion

$13.90 billion

Data sources: Morningstar, Yahoo! Finance.

Pepsi produces about 150% more revenue than Altria. Yet Altria is far more profitable, with an operating margin of nearly 38%,  compared with 16% for Pepsi. 

Altria is also a more capital-light business. Its capital expenditures totaled $180 million over the past 12 months. Pepsi's capital spending, meanwhile, exceeded $3 billion during this same time. As such, Altria generated $1.6 billion more in free cash flow than Pepsi over the past year.

Moreover, Pepsi is the more heavily indebted company, with $21 billion in net debt, compared with $11.5 billion for Altria. Altria, therefore, is the more financially sound business.

Advantage: Altria.

Growth

Altria is also expected to grow its profits at a quicker pace. Despite declining sales volumes for many of its core tobacco-based products, Wall Street estimates that Altria will increase its earnings per share at more than 9% annually over the next half-decade, driven largely by price increases, cost cuts, and share repurchases. During this same time, Pepsi's EPS is forecasted to rise by about 7% annually, driven mostly by the slow but steady growth of its Frito-Lay snacks division. As such, Altria has the edge here.

Advantage: Altria.

Valuation

Lastly, let's look at some key stock valuation metrics, including price-to-free cash flow (P/FCF), price-to-earnings (P/E), and price-to-earnings-to-growth (PEG) ratios.

Metric

PepsiCo

Altria

P/FCF

29.72 

14.15

Forward P/E

19.61 

12.48 

PEG

2.91 

1.51 

Data source: Finviz.

On all three metrics, Altria's stock is far more attractively priced. At current prices, investors would need to pay more than twice as much per dollar of free cash flow to buy Pepsi's shares as they would for Altria. They'd also be paying about 57% more for each dollar of earnings these businesses are expected to generate in the next year. And if we factor in Altria's higher expected EPS growth rate -- as we do with the PEG ratio -- its shares can be had for about half the cost of Pepsi, all of which makes the tobacco giant's stock the better deal.

Advantage: Altria.

The better buy is...

Although Pepsi's broader revenue diversification should continue to serve it well in the coming years, Altria's stronger financial position, greater earnings growth prospects, and more attractively priced stock make the tobacco titan the better buy today.