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Coca-Cola and Pepsi Are Both Refreshing Dividend Plays

These wide-moat firms are slightly undervalued and offer attractive dividends.

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Sonia Vora: Coca-Cola and Pepsi pay some of the most attractive dividends in the beverage space, yielding north of 3%. Both companies have an impressive track record of returning cash to shareholders, as evidenced by a dividend increase each year for more than 40 years. 

Longer term, we expect both firms to post average dividend growth around 7%. This implies a roughly 65% payout ratio for Pepsi and 75% payout ratio for Coca-Cola. Further, despite the fact that both firms made sizble acquisitions in August, with Pepsi acquiring Sodastream and Coca-Cola acquiring Costa, we expect them to remain committed to their dividend and continue to view their capital allocation policies as prudent.

Sonia Vora does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.