Pepsi Is Dirt Cheap With a 4.2% Dividend Yield. Here's Why Wall Street Is Favoring Coca-Cola Instead.

Pepsi Is Dirt Cheap With a 4.2% Dividend Yield. Here's Why Wall Street Is Favoring Coca-Cola Instead.

Lawrence Rothman, CFA, The Motley Fool

Sun, September 6, 2026 at 2:55 PM GMT+3 4 min read

Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP) have each been in existence since the 1800s. These venerable companies have battled each other for a very long time, trying to win over consumers' hearts, minds, and wallets.

More recently, has one pulled ahead and become the more attractive choice? Analyzing the business prospects is the first step, followed by examining their valuations.

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It's time to conduct a deeper dive into Coca-Cola and PepsiCo to see which one has the better investment potential.

Coca-Cola vs. PepsiCo

Coca-Cola focuses entirely on beverages. It's branched out from soda, and includes products like water, juice, and plant-based beverages.

Although consumers have grown cautious about discretionary spending, Coca-Cola has produced steady revenue gains. Second-quarter revenue, removing the impact from foreign-currency translation and acquisitions/divestitures, grew 6% year over year. Importantly, higher volume accounted for 4 percentage points, with the balance coming from higher prices/changing mix.

Turning to PepsiCo, it has expanded beyond beverages to include food items. Its offerings include soda. water, Gatorade, granola bars, cereal, oatmeal, and chips.

The company's top-line results have been sluggish as consumers balked at higher prices, with competitors eating into its market share. However, activist investor Elliott Investment Management took a stake in PepsiCo, and it had discussions with management. Subsequently, the company cut prices, and it's looking into developing products and cutting costs.

Product volume appears to have responded to the lower prices. After dragging down revenue, higher volume has been a positive contributor this year. PepsiCo's second-quarter adjusted revenue grew 2.4% compared to a year ago. Volume accounted for 1 percentage point of the increase.

Making the investment decision

Both companies have raised dividends annually for decades. In fact, Coca-Cola has increased dividends for 64 straight years, and PepsiCo has done so for 54 years. That makes them Dividend Kings, or companies that have hiked dividends for at least 50 consecutive years. However, PepsiCo's stock has an appealing 4.2% dividend yield, 1.8 percentage points higher than Coca-Cola's yield.

The stocks' valuations have been moving in opposite directions. PepsiCo's price-to-earnings (P/E) ratio has fallen from 24 to 18 this year. Meanwhile, Coca-Cola's P/E multiple has expanded from 23 to 27.

After examining each company, PepsiCo's stock presents the better investment opportunity. Management has taken steps to increase sales growth and make the business more competitive. Combined with a higher dividend yield and more attractive valuation, the stock offers greater total return potential.

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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Pepsi Is Dirt Cheap With a 4.2% Dividend Yield. Here's Why Wall Street Is Favoring Coca-Cola Instead. was originally published by The Motley Fool