Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) are two of the largest soda companies in the world. Both companies pay comparable dividends, but both are also struggling with declining demand for soft drinks and processed foods. Let's take a closer look at both companies, and decide which is a better play for long-term income investors.

Source: Pixabay.

Dividend basics
The first number most income investors look at is yield. Coca-Cola pays a forward annual dividend yield of 3.3%, while PepsiCo pays 3%. Over the past 12 months, Coca-Cola paid out 78% of its free cash flow as dividends, while PepsiCo paid out 49%.

Some investors might interpret Coca-Cola's higher yield and payout ratio as the company being more "generous," but we should also remember that PepsiCo's lower payout ratio gives it more room to grow its dividend in the future. PepsiCo also has superior free cash flow growth compared to Coca-Cola -- the former's FCF rose 42% over the past 12 months compared to the latter's 20% gain.

Both companies are "dividend aristocrats" which raised their dividends annually for more than 25 years. Their dividend increases have followed a similar trajectory -- over the past five years, Coca-Cola and PepsiCo respectively raised their dividends an average of 8.5% and 7.9% annually.

Bottom line growth
However, dividends don't mean much without the bottom line growth to support them. In that regard, PepsiCo easily topped Coca-Cola over the past decade.

KO Net Income (TTM) Chart

Source: YCharts

Coca-Cola's bottom line notably surged in 2010 and 2011, thanks to the acquisition of Coca-Cola Enterprises' (NYSE:CCE) North American bottling business. That deal was made to cut costs by uniting the supply chain under a single banner. Before Coca-Cola made that deal, PepsiCo also bought its two largest bottlers for $7.8 billion.

Despite those efforts to cut soda-making costs, soda sales have declined annually for ten consecutive years, due to waning demand for sugary drinks. Coke and Pepsi sales volume respectively declined 1.1% and 1.4% between 2013 and 2014.

Both Coca-Cola and PepsiCo's bottom lines suffered from that shift, but PepsiCo used sales of its food brands (Frito-Lay snacks, Quaker, and others) and non-carbonated drinks like Tropicana juice and Starbucks' (NASDAQ:SBUX) bottled beverages to offset those losses. During the first quarter of 2015, PepsiCo's snack/foods businesses accounted for nearly 70% of its operating profits.

Coca-Cola, which only sells beverages, could only rely on sales of "healthier" drinks like bottled water, tea, sports drinks, juices, and low-calorie sodas. Coca-Cola also invested in Monster Beverage (NASDAQ:MNST) and Keurig Green Mountain (UNKNOWN:GMCR.DL) to diversify its business, but both companies subsequently posted a streak of disappointing earnings.

As a result, Coca-Cola's net income plunged 17% annually in 2014, compared to PepsiCo's 3% bottom line decline. But looking ahead, things even out a bit. Coca-Cola expects its constant currency earnings per share to grow 4% to 7% in 2015, while PepsiCo is aiming for 7% growth on the same basis.

Top line growth
Despite waning demand for sodas and processed foods, both Coca-Cola and PepsiCo have grown their top lines at admirable rates over the past decade. However, this chart also reveals that top line growth at both companies has flattened out over the past three years.

KO Revenue (TTM) Chart

Source: YCharts

Coca-Cola splits its business into five main geographic regions (Eurasia/Africa, Europe, Latin America, North America, Asia/Pacific), and its aforementioned bottling investments. In 2014, operating revenue across all those segments, except Europe, declined annually, resulting in a 2% decline in its full-year revenue.

PepsiCo has four core business units -- Frito-Lay North America, Quaker Foods North America, Latin America Foods, and PepsiCo Americas Beverages. It splits the Europe and AMEA (Asia, Middle East, Africa) markets into two separate units which sell food and drinks together. Last year, revenue at all those business -- except Quaker Foods North America and Europe -- reported flat to positive growth, resulting in 0.4% sales growth in 2014. The snack/food businesses accounted for 42% of PepsiCo's top line during the first quarter.

The winner: PepsiCo
Coca-Cola has a higher yield and payout ratio, but PepsiCo has better top line, bottom line, and free cash flow growth. PepsiCo's diversified mix of food and drinks should also withstand declining demand in carbonated drinks better than Coca-Cola's portfolio of beverages. Moreover, PepsiCo has a cheaper trailing P/E of 22, while Coca-Cola trades at 25 times earnings. 

Thanks to those positive qualities, I believe that PepsiCo is currently the better pick for income investors looking for a conservative long-term play.