Coca-Cola vs. Sirius XM: Which Is the Better Dividend Growth Stock to Buy Now?

Coca-Cola (KO 0.64%) and Sirius XM (SIRI 1.81%) don't compete in the same industry, but dividend-seeking investors can find reasons to appreciate both stocks.

Coca-Cola attracts income-seeking investors with leading brands and a 62-year annual dividend-raising steak. What Sirius XM's dividend program lacks in longevity it makes up for with rapid payout bumps. America's only provider of satellite radio has more than doubled its dividend payout since 2019.

Both of these companies deliver lots of cash to their shareholders, but which one is likely to deliver the most in the years ahead? Here's a look under the hood to see which stock is poised to deliver the most passive income to patient investors.

Coca-Cola

There's hardly a person on the planet who hasn't heard of Coca-Cola, but the beverage leader's namesake isn't its only brand. Diet Coke, Sprite, and Fanta are just three of more than 20 brands that generate over $1 billion in annual sales.

Declining demand for sugary soda is a challenge but hardly one that the beverage champ can't handle by adjusting to changing consumer preferences. These days, Coca-Cola owns 12 billion-dollar brands in the water, sports, and tea categories. Those new brands support a dividend that offers a 3.1% yield at recent prices.

In the first nine months of 2024, unit case volume declined slightly in North America. Growing sales in Latin America offset the North American decline and pushed global unit case volume about 1% higher year over year.

The volume of beverages Coca-Cola sells isn't rising very fast, but the pricing power that comes with well-recognized brands is driving growth. Organic revenues, which ignore currency fluctuations, climbed 12% year over year in the first nine months of 2024.

Sugary soda demand has been in decline for decades, but overall beverage sales tend to climb steadily. In the third quarter, Coca-Cola generated $7.6 billion in free cash flow if we ignore a $6 billion IRS tax litigation deposit. That's enough cash to support future dividend raises and acquire up-and-coming beverage brands before they're large enough to pose a competitive threat. Acquiring new growth drivers is a well-tested strategy that Coca-Cola can run on repeat to steadily grow profits for decades.

Sirius XM

While Coca-Cola competes with an endless stream of new competitors, Sirius XM is the only company offering satellite radio in North America. In addition to satellite radio, Sirius XM acquired the music-streaming business, Pandora, in 2019. At the end of September, SiriusXM boasted 33 million subscribers, and Pandora had another 5.9 million paying subscribers.

Satellite radio isn't as popular as it was a decade ago, but subscriptions are reliable enough that the company has been able to raise its dividend payout by 103% since 2019. At recent prices, Sirius XM stock offers a 3.8% dividend yield. That's a sweeter yield than Coca-Cola stock offers, but dividend growth and sales are decelerating now that most new car owners can engage with Spotify in their vehicles just as easily as they used to engage with SiriusXM.

This year, Sirius XM raised its dividend payout by one-third of a penny to $0.27 per share.

Sirius XM held back on a big dividend raise this year while it waits for the dust to settle following a recent spin-off and a reverse stock split. Profits are sufficient to support a much larger dividend-payout raise in 2025. Over the past 12 months, the company met its dividend obligation using just 42% of the free cash flow generated by operations.

SiriusXM relies heavily on automatic trial subscriptions that start every time you buy a car. In Q3, paid promotional subscribers decreased by 114,000 as automakers pulled back from offering promotional plans.

Q3 SiriusXM revenue declined by 5% year over year due to a smaller base of self-paying subscribers. The decline is extra disturbing because its biggest competitor, Spotify, reported Q3 sales that rose 21% year over year.

The better buy

Spotify finished September with about 68 million paid subscribers in North America. That's already more than twice the size of SiriusXM's subscription base, and Spotify is still growing fast. While Sirius XM has the cash flows to support a high-yield dividend now, raising that payout will likely get more challenging if its subscriber count stagnates or declines.

Beverage consumption isn't rising quickly, but it is rising. Coca-Cola might offer a lower yield than Sirius XM at the moment, but it's positioned to deliver more dividend income over time. That makes the beverage champ the better buy right now.