Coca-Cola (NYSE: KO) stock hasn’t produced sparkling returns for investors over the past few years. Despite its impressive finances, the beverage giant’s stock performance trailed the Dow Jones Industrial Average by a wide margin in 2023.
Wall Street is concerned about Coke’s relatively weak sales outlook as consumer demand tilts away from traditional sodas. Shares also seem expensive, compared to industry peers.
The good news is that you’ve got some attractive options among dividend stocks if you’re looking for alternatives to Coke stock today. Walmart (NYSE: WMT) has a similarly dominant market share, for example, and PepsiCo (NASDAQ: PEP) shares are valued at a discount compared to the beverage titan. Let’s look at some excellent reasons to buy these two dividend giants instead of Coca-Cola right now.
1. Walmart
Walmart stock fared better than Coke in 2023, but the retailer still trailed the wider market for the year. Its 11.2% increase for the year wasn’t enough to keep up with the Dow’s 13.7% rise or the 24.2% spike that investors saw in the S&P 500. Coke stock fell 7.4% in 2023.
Yet better returns are likely on the way. In mid-November, Walmart reported solid customer traffic trends heading into the core holiday shopping season. Comparable-store sales in the U.S. market rose 5%, thanks to the combination of a 3% traffic increase and 2% higher average spending. Coke, on the other hand, has had to rely mostly on price increases to keep sales rising in the past year.
Walmart is boosting profitability and generating much stronger cash flow lately, which means management has more capital available to invest in the business and send back to shareholders through stock buybacks and a rising dividend. Sure, Walmart’s yield is about half of Coke’s 3.1%, but with profits rising faster than sales this year, investors can expect more significant dividend hikes ahead. Meanwhile, consider taking advantage of this cheaply valued stock that’s priced at 0.7x annual sales, compared to Costco Wholesale‘s price-to-sales ratio (P/S) of 1.2.
2. PepsiCo
If you’d prefer to stay in the same industry, consider PepsiCo as another great alternative. This dividend stock is arguably less risky than Coke, due to its more diverse sales portfolio that includes snack and breakfast foods in addition to beverages. Investors saw concrete benefits of this diversification during the early phases of the pandemic when Coke’s sales plummeted while Pepsi’s remained more stable.
Pepsi has its share of challenges, to be sure. The company is posting negative sales volumes in several of its niches, which means investors will want to watch that metric for a rebound going forward.
Yet profitability is strong and rising, cash flow is ample, and Pepsi has a clear path toward continued market-share gains as it innovates across brands like Doritos, Quaker, and Gatorade. Pepsi’s dividend yield sits close to Coke’s 3% rate, offering a nice bonus for patient investors willing to hold this stock over the long term.
Both companies have decades of experience behind them at steadily boosting their payouts each year. And there’s no reason why both stocks couldn’t be a good fit in a diversified portfolio.
But Pepsi, along with Walmart, offers some attractive features that aren’t available in a Coca-Cola investment at the moment. Consider keeping them on your watch list, then, if you’re looking for other strong dividend options.
Should you invest $1,000 in Walmart right now?
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Demitri Kalogeropoulos has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
Forget Coca-Cola. Here Are 2 Top Dividend Stocks to Buy Instead. was originally published by The Motley Fool
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