Coca Cola (NYSE: KO) is a great company, but the stock is up more than 20% in the past 12 months. Some investors may see that rapid rise and skip the stock in search of cheaper alternatives. That’s understandable, but what stocks should you look at if you’ve forgotten about Coca-Cola?
What about PepsiCo (NASDAQ: PEP) or Sagittarius-Daniels-Midland (NYSE: ADM)? Here are the reasons why both stocks could be good choices for investors right now.
What’s so special about Coca-Cola?
Coca-Cola has some very loyal fans on Wall Street, including Berkshire Hathaway CEO Warren Buffett. Buffett has owned the stock for decades, and for good reason. Coca-Cola owns one of the world’s most recognizable brands. It’s a strong marketer, has a robust distribution network, and has the size and scale to buy up emerging competitors to expand its own portfolio.
A great testament to the company’s success is its status as Dividend King, with over six decades of annual dividend increases under its belt. You don’t just become a Dividend King. It takes strong performance in both good times and bad to achieve that elite status.
That said, Coca-Cola has been doing pretty well lately. Revenue has grown about 7.5% per year, year-over-year, over the past five years. Annual earnings growth over that period has been just over 10%. So there are good reasons why investors like the stock now. So the 20% increase in the past 12 months isn’t exactly shocking.
Still, Coca-Cola looks a bit on the expensive side right now, with its price-to-sales (P/S) and price-to-earnings (P/E) ratios both slightly above their five-year averages. If you don’t mind paying full price, or maybe a bit more, for a great company, Coca-Cola could be a fine stock to own. But if you have a value bias, you’ll probably want to look elsewhere.
PepsiCo is similar to Coca-Cola in many ways
If you know the Coca-Cola brand, you probably know the Pepsi brand. It plays second fiddle to Coca-Cola in the soft drink space, but don’t take that as a sign that PepsiCo is a bad company. Far from it. Not only is it a strong #2 player in the beverage space, but it’s also #1 in salty snacks with its Frito-Lay division. PepsiCo also makes packaged foods through its Quaker Oats business. If you’re a fan of corporate diversification, you’ll probably like PepsiCo more than Coca-Cola!
Perhaps it goes without saying, but PepsiCo is as strong as Coca-Cola in terms of distribution, marketing and scale. Like Coca-Cola, PepsiCo is a valued partner to retailers around the world. And like Coca-Cola, PepsiCo is a very elite Dividend King.
What PepsiCo isn’t doing right now, however, is performing as well financially. In fact, earnings have been down over the past five years. Investors have responded by shunning PepsiCo stock, which has been flat over the past 12 months. But that presents an opportunity for investors looking for long-term income.
PepsiCo’s dividend yield is 3% compared to Coca-Cola’s 2.7%. And PepsiCo’s P/S and P/E ratios are both below their five-year averages. In other words, it’s a comparably strong company, but it’s cheaper today because it’s not firing on all cylinders.
But given the company’s long-term success, particularly with annual dividend increases over the past 50 years, it seems highly likely that PepsiCo will weather this difficult period without any problems. And pay you handsomely if you wait for the company to get back on track.
Archer-Daniels-Midland is almost a Dividend King
Archer-Daniels-Midland’s dividend yield is 3.3%, better than both Coca-Cola and PepsiCo. While it’s not yet a Dividend King, it’s poised to get even higher, with 49 annual dividend increases to its name. That said, Archer-Daniels-Midland is a very different kind of consumer products company. Unlike Coca-Cola and PepsiCo, Archer-Daniels-Midland is a supplier to other food companies, selling things like oilseeds, corn, and wheat.
The shares are down about 25% in the past year. Financials have been pretty bad lately, with both the top and bottom lines trending down. To be fair, commodities are a big part of the business, so revenue and earnings can be a bit volatile. This period of weakness isn’t really that shocking after the inflation spike not so long ago.
Still, investors are responding, and if you’re a long-term dividend investor, you might want to get in while others fear. Archer-Daniels-Midlands’ P/S and P/E ratios are both below their five-year averages.
The key here is that, given its long history of annual dividend increases, Archer-Daniels-Midland clearly knows how to survive commodity cycles while continuing to pay investors well. If you can tolerate a little near-term uncertainty, this stock offers a much more attractive dividend yield than Coca-Cola.
Look at Coca-Cola, but consider buying PepsiCo and Archer-Daniels-Midland
There is nothing wrong with Coca-Cola as a company. The problem is that the stock is a little expensive today. If you are not willing to pay up for a great company, then you should consider two similarly strong dividend stocks in PepsiCo and Archer-Daniels-Midland.
Neither is performing as well as Coca-Cola is doing financially today, but their strong dividend history suggests they will eventually figure out how to get their businesses back on track. You get paid well to wait while they do.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Forget Coca-Cola: These Unstoppable Dividend Stocks Are Better Buys was originally published by The Motley Fool
