The soft drinks market is a huge global industry providing many opportunities for companies and their investors to profit over the long term. Different players offer their own risk and return trade-off, so let´s take a look at some alternatives to find out which may be a convenient addition for your portfolio.
Solid giants
The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) are among the biggest and most respected corporations in the world. They both offer unquestionable soundness due to their globally recognized brands, abundant financial resources and gigantic distribution networks. The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) are among the favorite names in the dividend investing community, and for good reasons.
Coke has raised its dividend payments over the last 51 consecutive years through all kinds of economic and political scenarios. While PepsiCo, Inc. (NYSE:PEP)’s track record of dividend increases is a bit shorter with 41 consecutive years, it’s still a remarkable achievement reflecting unquestionable fundamental strength.
Both companies pay similar dividend yields in the area of 2.8% for PepsiCo, Inc. (NYSE:PEP) and 2.9% for Coke, but Pepsi has a slightly lower payout ratio around 50% versus 55% for Coke. When it comes to dividend growth, Coke is ahead of PepsiCo, Inc. (NYSE:PEP) lately, in 2013 the company increased its dividend by 10% in 2013 versus a 6% increase for PepsiCo.
The Coca-Cola Company (NYSE:KO) won the cola wars in 2010, when Coke and Diet coke became the two most consumed carbonated drinks brands in the U.S., relegating PepsiCo, Inc. (NYSE:PEP) to a third position. PepsiCo, on the other hand, owns a leadership position in the global snacks market through its Frito-Lay division, which provides diversification to the company´s operations.
Coke and Pepsi have been facing stagnant volume growth in developed markets due to healthier diet habits and market saturation, but emerging countries are still providing room for expansion.
Coke reported a 9% increase in volume in Eurasia and Africa during the last quarter, while Pepsi delivered 9% organic volume growth in beverages and 6% organic volume growth in snacks in Asia, Middle East & Africa (AMEA) during the same period. Performances in the Americas and Europe have been quite disappointing for both companies, though.
Coke and Pepsi are two solid and safe companies, especially adequate for dividend investors, but they are unlikely to reward investors with exciting growth in the middle term. Analysts are estimating growth rates of 7.9% and 8.3% for Coke and Pepsi, respectively, in the next five years.
