Investors have some differing expectations around Coca-Cola (KO -0.43%) and Walmart (WMT -1.48%) stocks these days. While the world's largest retailer is among the best performers on the Dow Jones Industrial Average in 2023, Coke is sitting near the bottom of that list. Walmart is enjoying strong customer traffic growth and excellent profits as consumers focus more on value. Coke's stock has been pressured, meanwhile, by flat sales volumes in recent months.
Dividend yields move in opposite directions to stock prices, though, meaning Coke is becoming a more compelling option thanks to its falling valuation and rising yield. But should income investors pick the beverage titan over Walmart right now? Let's take a closer look.
Recent trends
At a glance, Coke might seem like the stronger growth stock right now. Organic revenue was up 11% in the most recent quarter while Walmart posted a 6% increase.
Look a bit closer, though, and you'll see that Walmart has better momentum today. The retailer is benefiting from a healthy balance between rising customer traffic and higher average spending, for example. These trends combined to push overall revenue up in the core U.S. business and have set Walmart apart from other retailers like Target.
In contrast, Coke's revenue growth in mid-2023 came entirely from rising prices. Sales volumes were flat this past quarter while prices jumped 10%. This boost reflects the company's impressive pricing power, but investors want to see Coke achieve higher volumes at the same time. That fact, plus Walmart's brightening 2023 outlook, suggests the consumer staples retailer has a clearer path toward rising annual sales.
Cash and profits
Dividends ultimately track cash flow over the long term, and Walmart stands out as a winner on this point as well. While Coke consistently generates over $10 billion in annual operating cash flow, the retailing titan has succeeded in pushing its comparable metric much higher this year. It helps that Walmart is finding areas to significantly boost efficiency, including by reducing inventory holdings in recent quarters. As a result, operating cash flow has jumped to a record.
WMT Cash from Operations (TTM) data by YCharts
Given Walmart's plan to keep capital expenditures steady this year compared with last year, this spike suggests potentially large dividend increases in 2024 and beyond. That's great news for income investors considering adding Walmart to their portfolios while aiming for a quickly growing payout. Still, Coke boasts the meatier dividend right now, with its yield passing 3% compared to Walmart's 1.4% yield.
The price is right
Even the strongest business will fail to generate solid investment returns if it is priced too high. This risk is modest for investors considering Coca-Cola stock and even lower for Walmart.
Coke is valued at less than 6 times annual sales, which is near its lowest price by that metric since the start of the pandemic. Walmart's stock price rally hasn't pushed it into "expensive" territory, either. You can purchase shares for about 0.7 times annual sales compared to its pandemic peak of roughly 0.75 times sales.
Both businesses are likely to be setting new sales and earnings records in a few years thanks to their dominant market positions and strong financial positions. Yet if you're looking for stability and don't mind a smaller current yield, then Walmart is the better option today. The retailing giant offers a nice balance between growth and income at an attractive price now.
