Coca-Cola (KO) is a dominant business that has unfortunately delivered less-than-sparkling returns for investors of late. The beverage giant's shares underperformed the market over the past three years despite Coke's ability to boost annual sales and earnings in that time.
Investors are worried about structural pressures on Coke's core business as demand slowly shifts away from traditional sodas. If that's your concern, I have three excellent alternatives to consider. Read on for a few reasons to like McDonald's (MCD -0.91%), Walmart (WMT -0.08%), and PepsiCo (PEP -0.62%) as potentially better stalwart dividend investments.
1. McDonald's has the profits
One of the best reasons to like Coca-Cola stock is the company's market-leading profit margin. Its dominant position in a massive global industry allows it to earn multiples of what its smaller rivals can expect, after all.
The same can be said about McDonald's. The fast-food giant recently set a profitability record after converting 46% of its sales into operating income. Chipotle, in contrast, has a 16% profit margin.
McDonald's earns those unusually high returns mainly from its heavily franchised operating model, which also adds valuable flexibility to its revenue and income streams. And Mickey D's has shown a knack for reinventing itself along with changing consumer preferences.
In recent years, these responses have included adding more natural ingredients and more conveniences around digital ordering and delivery. That adaptability should help deliver tasty returns for investors who just hold this stock over the long term.
2. Walmart's dividend streak
There aren't many companies that match or exceed Coca-Cola's dividend streak of over 60 years, but Walmart comes close. The retailer has boosted its annual payout in each of the last 50 years, putting it in that exclusive club of Dividend Kings.
The company is no slouch in the growth department, either. Comparable-store sales were up 5% in the core U.S. market last quarter, translating into market share gains through a tough selling environment. However, investors are used to seeing these kinds of results from the industry leader, which has steadily boosted its sales footprint through booms and busts over the decades.
Walmart stock looks reasonably priced today, too. You can own shares for 0.7 times sales following a modest sell-off in response to the chain's third-quarter earnings update.
That report featured some cautious comments from management about short-term growth trends. But investors can look past the volatility and focus on Walmart's bright long-term outlook.
3. PepsiCo is more diverse
PepsiCo doesn't have nearly as high a profit margin as Coke does right now. But this stock delivers in an area that Coca-Cola can't match: revenue stream diversity.
Along with two dozen beverage brands, Pepsi has a large and thriving food products division that spans snacks and breakfast foods. This exposure allowed the company to protect sales and profits during the early phases of the pandemic, showing off the power of having multiple revenue streams.
Pepsi is also a stalwart dividend payer with over 50 years of consecutive raises under its belt. And the best news is that the stock is priced at a huge discount to Coke's shares.
You can buy PepsiCo for 2.5 times sales, or about half of Coke's valuation. That discount can set you up for excellent long-term returns if you patiently hold this dividend giant through the inevitable ups and downs in the consumer packaged food industry.
