Key Points
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Coca-Cola’s business model and margins are shielded from unexpectedly high inflation.
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The beverage company’s top rival, however, has regrouped to make itself more marketable in this economic environment.
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Investors aren’t yet pricing in the proof of continued progress that could materialize within the next few days.
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It’s been a great year for Coca-Cola (NYSE: KO) shareholders so far. The stock’s up more than 16% since the end of 2025, easily outperforming the S&P 500 and the Nasdaq Composite.
It’s not too tough to figure out why, either. With the market wobbling amid concerns about artificial intelligence, investors are looking for certainty. With 64 consecutive years of dividend increases to its credit, the beverage behemoth clearly offers it.
If you’re looking for a better dividend-paying option for the latter half of 2026, consider fellow Dividend King and direct beverage rival PepsiCo (NASDAQ: PEP). Here’s why.
The differences are no longer a liability
At first blush, the two consumer product outfits are seemingly so similar that they’re almost interchangeable. But look under the hood. The differences are surprisingly stark.
For instance, whereas Coca-Cola outsources the bulk of its production and distribution, PepsiCo owns and operates most of its own bottling operations. It’s also the name behind snack chip brands Lay’s, Doritos, Cheetos, and others, as well as Quaker Oats.
And these differences are a key reason PepsiCo shares have lagged Coke’s for more than two years. Coca-Cola maintains its higher margins even when inflation is hitting bottlers and consumers alike. PepsiCo doesn’t. As its own bottler, higher input and operational costs are pinching profit margins. Snack foods are more sensitive to inflationary pressures, as well. That’s why last year’s revenue barely budged, while per-share profits fell 14% year over year.
As the old adage goes, nothing lasts forever. Although it arguably took the company a little too long to figure it out, consumer-friendly price breaks and the launch of increasingly popular snacks like FiberPop and Doritos protein chips are making a difference. PepsiCo’s first-quarter organic revenue improved a respectable 2.6% year over year, which — importantly — grew operating income to the tune of 24%, driving per-share profits up from $1.33 in Q1 of last year to $1.70 this year. Analysts are looking for similar progress this year and through next.
No reason to wait
This impending turnaround isn’t yet reflected in the stock’s performance. Given how long it took the company to respond initially to the pickier, inflation-riddled environment, investors may be understandably hesitant to believe it’s happening until they see further evidence.
That doesn’t mean a recovery isn’t brewing, though. The market could readily start to believe again in just a few days, in fact, when the beverage and snack company releases its second-quarter results, expected to mirror Q1’s progress.
Even if that doesn’t get the ball rolling, PepsiCo is compelling at its current state simply because it will reward you pretty well while you wait. Its forward-looking dividend yield currently stands at 4.2%, versus Coca-Cola’s more modest 2.6%.
PepsiCo’s dividend, by the way, has now been raised for 54 consecutive years, putting the company firmly among the Dividend Kings — businesses that have annually increased their dividend payouts for at least 50 years. That streak seems unlikely to be broken anytime soon, no matter how long it takes the stock to snap out of its funk.
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James Brumley has positions in Coca-Cola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
