Coca-Cola vs. UPS: Which Dividend Stock Could Make You Richer Over the Next 10 Years?

Coca-Cola (NYSE:KO) and UPS (NYSE:UPS) both recently reported encouraging third-quarter results. However, the market prices them very differently. UPS' dividend currently yields over 6%, nearly triple Coke's yield of more than 2%. That's largely due to a big difference in their valuations.

So which dividend stock is likelier to make you richer by 2036? I ran the numbers, and the answer might not be the one you'd expect.

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Coke's growth is real, but so is the price

Coca-Cola had a really strong quarter. Volumes grew 5%, with Coca-Cola Zero Sugar up 16%, and comparable earnings per share (EPS) rose 11% to $0.91. While the company continues to flex its pricing power muscles, price/mix added just 1%, so growth came mostly from selling more drinks. Management also raised its full-year EPS growth outlook to at least 11%, or about $3.33 per share, up from its prior guidance of 9%-10%.

The catch is that at about $93 per share, Coca-Cola trades at roughly 28 times this year's earnings. That's a premium valuation. The S&P 500 currently trades at about 23 times earnings. While Coca-Cola is growing at a double-digit clip this year, its long-term outlook is for high-single-digit EPS growth.

UPS is cheaper because its turnaround isn't finished

While Coca-Cola is firing on all cylinders these days, UPS is in the midst of a major turnaround. It's shrinking its Amazon business to a more profitable size.

That turnaround is starting to deliver results. U.S. Domestic revenue per piece rose 6.1%, while its adjusted operating margin improved. The continued strengthening of its business led the company to boost its full-year outlook. It now expects to deliver $7.28 per share of adjusted earnings.

With its stock recently around $107 per share, UPS trades at less than 15 times earnings. That lower valuation is one reason why it has a much higher dividend yield than Coca-Cola.

Coke's dividend is safer, and UPS' is thinner than it looks

For dividend investors, the case is clear. Coke currently pays $2.12 per share annually in dividends, up 4% from its prior payout. That was its 64th consecutive annual dividend increase, maintaining its place among the Dividend Kings, companies with 50 or more consecutive annual dividend increases. The company has paid out $6.8 billion in dividends this year, easily covered by free cash flow ($11.4 billion).

UPS has paid a stable-to-growing dividend every year since going public in 1999. At its current annual dividend rate of $6.56 per share, the payout has cost it $4.1 billion this year. That's just below the $4.2 billion in free cash flow it has generated year-to-date. However, there were several moving parts this year, including property sales, pension contributions, and a voluntary buyout and severance initiative. The company expects its free cash flow to improve in 2027, leading CEO Carol Tomé to state on the third-quarter conference call that "our dividend is safe and secure."

Still, when it comes to overall dividend safety, Coca-Cola wins hands down.

What $10,000 could become by 2036

However, the dividend is only part of the return. I ran several models on their total return potential over the next decade. UPS won every time:

Image source: The Author.

The bear case assumes slower earnings growth and a contraction in valuation multiples for both companies. Meanwhile, the base case assumes mid-single-digit earnings growth (and a slight valuation contraction for Coke), while the bull case assumes faster growth (and some multiple expansion for UPS).

The key takeaway is that Coke's premium valuation will likely diminish its total return potential over the next decade, while UPS' less demanding valuation leaves more upside potential.

Which would I buy right now for the next decade?

Investors have two very different choices. Coke is safer, especially if you value durable dividend income. However, UPS offers a higher yield today and has greater upside if its turnaround succeeds. So, if you want to grow richer over the next decade and are willing to take the risk, UPS is the dividend stock that could deliver the highest total return.

Matt DiLallo has positions in Amazon, Coca-Cola, and United Parcel Service and has the following options: long June 2028 $180 calls on Amazon and short September 2026 $280 calls on Amazon. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool has a disclosure policy.