Better Buy: Coca-Cola at an All-Time High With a 2.5% Dividend Yield or Pepsi With a 4.2% Dividend Yield?

It is no secret that Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP) have fought an intense competitive battle for decades. Much of that competition revolved around the flagship cola beverages of each company, but it also extends to their non-soda products.

From an investor standpoint, their stocks appear to compete in the same way. Still, Coca-Cola offers a dividend yield substantially below that of PepsiCo, and the question for investors is whether Coca-Cola stock is a better buy despite that disadvantage. Let's take a closer look.

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Comparing Coca-Cola and PepsiCo

Investors should first remember that investment cases do not typically revolve around dividend yields. Thus, unless one is an income investor, PepsiCo's 4.2% dividend yield does not necessarily make it a better buy than Coca-Cola with a 2.5% yield. Valuation, growth, and the overall state of the businesses are also factors investors should consider.

Other differences are more subtle. Both companies own numerous soda, coffee, tea, water, and juice brands, so PepsiCo differentiates itself by also owning food brands like Quaker and Frito-Lay.

In terms of stock performance, Coca-Cola has had the clear advantage over PepsiCo, with its stock gaining more than 50% over the last five years. In comparison, PepsiCo lost value during that time.

KO data by YCharts

However, for the most part, other metrics mostly favor PepsiCo. Coca-Cola investors pay a premium, as its 26 P/E ratio is well above PepsiCo's 18 P/E.

In terms of Q1 revenue growth, Coca-Cola's 12% increase was above PepsiCo's 8.5% and its 6.4% rise in Q2 (Coca-Cola has not yet released its Q2 results), though PepsiCo's Q1 net income growth was 27%, well ahead of Coca-Cola's at 18%.

Other metrics help Coca-Cola, but in a less meaningful way. When it comes to the dividend, Coca-Cola has increased its payout for 64 straight years, ahead of PepsiCo at 54 years. Nonetheless, both are Dividend Kings, a status both companies likely want to keep. That should make the payout of both companies relatively safe.

Moreover, the massive investment by Warren Buffett when he ran Berkshire Hathaway enhanced Coca-Cola's reputation as a wide-moat dividend stock.

Still, Berkshire has not purchased additional Coca-Cola shares since 1994. This indicates Coca-Cola is now a hold instead of a buy, even as Berkshire continues to collect rising dividend returns. That past success probably makes little difference to today's income investors, especially when they will earn a significantly higher yield from PepsiCo's stock.

Coca-Cola or PepsiCo?

In today's market, investors should probably choose PepsiCo and its higher dividend yield over Coca-Cola. Indeed, Coca-Cola's stock outperformed PepsiCo's over the last five years, and its revenue grew faster in Q1.

However, past performance does not guarantee future results, and Coca-Cola stock has not meaningfully stood out in other respects.

Consequently, PepsiCo's higher dividend yield, along with its lower P/E ratio, gives it an advantage, especially with income-oriented investors. Assuming it can maintain mid-single-digit revenue growth, this could easily lead to a recovery in PepsiCo's stock price, making it a choice that could deliver higher overall returns over time.

Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.