Top Dividend Stocks: Comparing Coca-Cola, Pepsi, and Hormel – Why I Prefer One Over the Others

Top Dividend Stocks: Comparing Coca-Cola, Pepsi, and Hormel – Why I Prefer One Over the Others

For investors looking for a safe dividend investment, by browsing the list of Dividend Kings is a good starting point. These companies have all been paying and increasing their dividends for 50 years or more. This doesn’t mean the sequences will continue forever. In fact, companies frequently disappear from the list. But it shows which companies have a history of operational excellence and prioritize shareholder returns.

Three Companies That Make the Dividend Kings List Are Beverage Giants The Coca-Cola Company (NYSE:KO)the main rival of Coca-Cola PepsiCo (NASDAQ:PEP)and food business Hormel Foods (NYSE:HRL). But from an investment perspective, these three companies share many more similarities than just the longevity of their dividends.

To begin, dividend investors like to consider the price of a stock dividend yield before investing: This is the amount investors received for the value of their investment over the past year. The chart below shows that Coca-Cola, Pepsi, and Hormel all have dividend yields close to 3%, giving investors $3 for every $100 invested.

Top Dividend Stocks: Comparing Coca-Cola, Pepsi, and Hormel – Why I Prefer One Over the Others

KO Dividend Yield Chart

Additionally, dividend investors like to consider a company’s payout ratio to assess the risk of the investment. This measures the percentage of a company’s profits that goes toward the dividend. Generally speaking, lower is better. But Coca-Cola, Pepsi and Hormel have similar distribution rates, 74%, 74% and 76%, respectively.

Therefore, there is no clear winner between Coca-Cola, Pepsi, and Hormel when considering their consecutive years of dividend payments, dividend yields, and payout ratios. These factors being equal, I think there is another factor to consider. And that makes Hormel the best option for investors looking to buy any of these three stocks today.

Why I Choose Hormel Stock

Over the next few years, I believe Hormel will be able to grow its profits at a faster rate than Coca-Cola and Pepsi. And that’s why I love it the most.

Consumers are familiar with Hormel’s Chili and Spam. But most are probably unaware of how many products and brands this company offers. And with this product portfolio, Hormel is on a mission to dominate convenience stores.

Hormel has a long-standing presence in convenience stores, but much of it goes unnoticed. For example, investors may not know that it is a leading pizza toppings company and that many convenience stores sell hot pizzas made with Hormel ingredients.

In addition, Hormel sells snacks under its Skippy peanut butter brand, refrigerated tubs and microwaveable meals under its Compleats brand.

Hormel already had a presence in convenience stores, but acquired Planters in 2021. Planters is a purer snacking brand and had a broader presence in convenience stores. The company can now leverage distribution of the Planters brand to expand distribution of its other Hormel products.

Compared to grocery store sales, Hormel’s profit margins are better at convenience stores and with its foodservice products. Growth in this area could therefore lead to better profitability. And profit growth leads to more headroom for the service and an increase in its dividend.

The Pepsi title comes just behind

Of course, there’s a caveat to my optimistic expectations for Hormel: I’m counting on something that will start happening in the next few years that won’t happen this year. Hormel has already released its financial results for its first fiscal quarter 2024 and gave full-year adjusted diluted earnings per share (EPS) guidance of $1.51 to $1.65.

For perspective, Hormel had adjusted diluted EPS by $1.61 in its fiscal 2023. Therefore, its guidance implies a potential decline in earnings. I expect the growth of convenience store chains to start having a positive impact beyond FY2024.

This uncertainty for Hormel is why Pepsi stock is a close second for a stock to buy today. Pepsi also has a solid earnings growth trajectory and it’s a somewhat simpler proposition.

Pepsi is more focused than ever on profit growth in its international operations. Revenue from its international operations grew 6% year-on-year in 2023. However, this resulted in a more than 200% increase in its international operating profit. And its international operating profit accounted for 38% of its total operating profit.

Discussing the profitability of international operations, Pepsi CEO Ramon Laguarta said: “Our international operations are now very important. » And this scale portends further growth in the company’s profits as international sales increase. And Laguarta added that the company expects international growth to outpace growth in North America again in 2024.

Therefore, Pepsi has a straightforward path to earnings growth, which also gives the stock upside potential. This is something investors should keep in mind, although I still believe Hormel’s potential could be higher in the coming years.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

Coca-Cola, Pepsi, and Hormel are all wonderful dividend stocks. But there is a simple reason why I choose one over the other two. was originally published by The Motley Fool

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