Coca-Cola vs PepsiCo: What's the Better Dividend Stock to Buy Right Now?

Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) are iconic businesses, and their stocks are known for being among the best income-generating investments to own.

However, they've been going in vastly different directions. In the past three years, Coca-Cola's stock has risen by around 50%, while PepsiCo's has declined by 21%. And as dividend investors know, that means their yields have been going in opposite directions; Coca-Cola's yield has been shrinking while PepsiCo's has been rising.

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But there's more to assessing dividend stocks than just looking at their yields and past performances. Below, I'll look at both of these stocks to see which one is the best option for dividend investors right now, considering their yields, dividend growth rates, overall financial strength, and valuations.

PepsiCo's yield is higher, and its increases have been more generous in recent years

Both PepsiCo and Coca-Cola have been increasing their payouts for more than 50 consecutive years, making them Dividend Kings . Past dividend growth doesn't guarantee future increases, but it is indicative of a company's commitment to growing the payout. Plus, it also demonstrates confidence in its future earnings growth.

Investors should also, however, consider the rate of dividend increases. A stock that raises its payout by just one cent would technically be increasing it, but that can mean minimal incremental dividend income for an investor. In the past five years, PepsiCo has raised its dividend at a noticeably higher rate than Coca-Cola.

PepsiCo already offers a higher yield of 4.3% versus 2.4% for Coca-Cola, which gives it the edge in this area. If this trend continues, the gap may grow larger in the future.

Coca-Cola has a leaner business and a lower payout ratio

Coca-Cola has a simpler, less complex business model than PepsiCo, which, in addition to beverages, also includes many top snacking brands. Its business is bulkier, and as a result, its margins are not as impressive as Coca-Cola's. While PepsiCo has averaged a profit margin of around 11% over the trailing 12 months, Coca-Cola's margin is up around 28%.

Furthermore, Coca-Cola's payout ratio of 63% is lower than PepsiCo's, which is around 75%. With a lower payout ratio and better margins, Coca-Cola may be in a stronger position to increase its dividend at a faster rate in the future -- but it's by no means a guarantee.