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The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP): A win-win situation

PepsiCo has several positive points, which offer solid prospects for investors. It has a well-diversified product portfolio with well-balanced exposure in both beverages and snacks segments. It is witnessing solid growth momentum in its foods business, which witnessed 8% organic revenue growth in the fourth quarter.

The company is investing significantly on its brand-building initiatives.  In 2012, it spent 5.7% of its net revenue in marketing, up from 5.2% in prior year. It is also moving ahead with a major restructuring program that commenced last year.

How do investors gain?

In addition to the solid upsides that both the stocks offer to long-term investors, these two companies are quite well known for returning value to shareholders in the form of healthy dividends and regular share buybacks.

In 2012, Coca Cola paid dividends of $4.6 billion and repurchased shares for $4.5 billion thus returning $9.1 billion to shareholders. PepsiCo was not lagging behind much, either. In 2012, through a combination of dividends and share repurchases, it returned $6.5 billion to shareholders.

Both The Coca-Cola Company (NYSE:KO) and PepsiCo have announced dividend increases following their earnings releases. For Coca Cola, this is the 51st consecutive year of dividend increases.

The company has upped its quarterly dividend by 10%, from $0.255 to $0.28 per common share. This translates to an annual dividend of $1.12 per share, compared to $1.02 per share in 2012. At the current share price of $38.11 the new dividend will yield 3% annually.

PepsiCo has announced a 5.6% increase, which works out to an annual dividend of $2.27 per share, compared to $2.15 in 2012. At the current share price of $75.62, this also yields 3% annually. This is PepsiCo’s 41st consecutive year of dividend increases.

Both companies are a permanent feature in the S&P 500’s Dividend Aristocrats Index, which tracks the top S&P 500 blue-chip companies that have increased their dividends for 25 or more consecutive years.

To sum up

Coca Cola and PepsiCo are both solid investment propositions. Both companies have significant upside potential stemming from their operational strength and growing presence in emerging and developing economies. This is not yet factored in their current stock prices. In addition Coca Cola and PepsiCo continue to remain investor friendly with their attractive dividend yields and share buybacks.

The article Coca Cola and PepsiCo: A win-win situation originally appeared on and is written by Eshna De.

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