Source: Flickr user Refracted Moments.

Receiving a dividend check used to be somewhat special, but nowadays, that's no longer the case. According to Finviz, there are more than 1,900 stocks with a market valuation above $300 million that have paid a dividend to shareholders at some point over the trailing-12-month period. Unfortunately, a sizable portion of these dividends are either too minuscule to be given the time of day by investors, or they're simply the one-off variety with little chance of sustainability.

How do you find quality dividends, you ask? Simply put, you look beyond the surface, which in this case would be a company's dividend yield, and you dig deep to understand a company's business model. By focusing on the growth, value, and sustainability of a business and its dividend, you can come to a more conclusive decision on whether or not a dividend stock is really worth buying and/or holding.

To establish this point, let's take a closer look at two of the most widely followed dividend stocks in the consumer goods sector, Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP), and determine which of these two companies really is the better dividend stock.

The first thing worth examining is whether or not a company has strong enough growth to support not only the idea of price appreciation in its stock, but a sustainable and/or growing dividend.

Source: Coca-Cola.

As you might have expected, growth for Coca-Cola and PepsiCo is fairly tame, primarily because of their already enormous size. This is an instance where low- to mid-single-digit growth is perfectly acceptable because even fractional improvements in margins for either company could lead to a substantial improvement in free cash flow generation.

Coca-Cola, for instance, reported worldwide volume growth of 3% during the second quarter, despite a modest 1% decline in net revenue. Yet, the company was able to generate an astronomical $4.5 billion in cash from operations through just the first two quarters of fiscal 2014. For Coca-Cola, still beverages have really been the company's high-water mark -- and that pun is wholly intended, as teas, packaged water, and sports drinks racked up 4%, 7%, and 6% growth in the latest quarter. This is a perfect demonstration of Coke's opportunity in these markets despite already operating in all but two countries around the world. 

PepsiCo's second-quarter results were somewhat similar, with organic growth of 3.6%, led by the Asia, Middle East, and Africa geographic region. Unlike Coca-Cola, though, PepsiCo has really wiggled its way into the snacks arena and fully expects people's insatiable appetite for snacks to drive its growth in the coming years. Its Latin American Foods division delivered 8% organic revenue growth during the quarter, thanks in part to an 11% pricing boost, while Frito-Lay provided 2% revenue growth. 

Source: PepsiCo.

Of course, both companies are facing increased scrutiny over the arguable linkage between soda and obesity, especially within the U.S., where roughly one in three Americans is considered obese. This soda backlash is likely to remain a shared headwind for both companies moving forward.

After carefully weighing the growth prospects for Coca-Cola and PepsiCo, I'm awarding the growth category to PepsiCo for two reasons. First, I suspect its foray into snacks will drive organic growth that'll outpace Coca-Cola throughout the remainder of the decade. Secondly, PepsiCo has more opportunity to infiltrate emerging markets than Coca-Cola, primarily because Coca-Cola's already there! I know that's sort of a causality win for PepsiCo, but it's a viable reason to expect PepsiCo to outperform.

In addition to a stock that's growing, investors want to feel they're buying into a stock that's a good value. Arguably, you'd have a hard time going wrong buying into a tried-and-true business model like what Coca-Cola or PepsiCo offer investors, but there could be meaningful differences we can uncover by comparing a handful of key metrics against one another.

Here are the pertinent data points you should be aware of between Coca-Cola and PepsiCo:


Price / Sales (TTM)

Forward P/E

PEG Ratio

Profit Margin (TTM)

Net Cash / Debt






($18.6 billion)






($21.6 billion)

Source: Yahoo! Finance. TTM = Trailing 12 months.

If you were hoping there would be some sizable differences here, you'll be disappointed. Coca-Cola does boast a substantially juicier profit margin, which is a direct correlation to its primary focus being on beverages (which have higher profit margins) and not snacks. However, on a valuation basis, PepsiCo looks marginally more attractive, with a notably lower PEG ratio (indicative of its superior five-year growth rate relative to Coca-Cola), and a much smaller price-to-sales ratio. While in no way a runaway winner, I'd also give PepsiCo the slight edge in the value department.

Lastly, when it comes to evaluating a business model and a dividend, we want to look beyond just how the company did last quarter, or is even expected to do this year and next year, and focus instead on whether or not its business model is viable 10, 20, or even 30 years down the line. In this instance, with two of the largest beverage companies in the world, I think you'd be hard-pressed to argue that both won't be thriving 10 or 20 years from now. Their products tend to be mostly impervious to economic fluctuations, which makes both companies particularly attractive candidates for investors to buy and hold over the long term.

It's also difficult to differentiate the two based on their dividend history. In May, PepsiCo announced its 42nd annual dividend increase, while Coca-Cola has bumped its dividend higher for 52 straight years. And, were that not enough, both companies are currently yielding an identical 2.8%, which is a good 40% higher than the average dividend yield of the S&P 500.

KO Dividend data by YCharts.

As has been the case with all of these categories, the victory is a small one, but I'm going to nominate Coca-Cola as the slightly more sustainable company. Its global presence in all but two countries coupled with its cash flow makes it very likely to be able to maintain or grow its dividend in the future.

The better dividend stock is...
After carefully reviewing Coca-Cola and PepsiCo, I've come to two conclusions.

Source: PepsiCo.

First, either company would probably make for a fantastic long-term investment. Coca-Cola, for example, is home to some of the best-selling beverage lines in the world, it's geographically diversified, and according to Brand Keys, it has the best brand loyalty between the two companies. PepsiCo, will offer a more robust growth rate thanks to its snack brands, and it gives investors an opportunity to participate in further emerging market expansion yet to come.

The other conclusion I've reached, and to answer our initial question, is that PepsiCo is marginally the better dividend stock of the two. PepsiCo's growth prospects due to its snack brands, and its ability to further entrench itself in emerging markets should allow it to outpace Coca-Cola in the growth department and potentially outperform Coca-Cola in both dividend growth and share price appreciation over the next decade and beyond.