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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.

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