Coca-Cola vs. Colgate-Palmolive: Which Dividend Aristocrat is a Better Buy for Your Retirement Portfolio?

NYSE: KO | Coca-Cola Company (The)  News, Ratings, and Charts

KO – Dividend Aristocrats have proven to be dependable in volatile markets. And as investors seek ways to hedge their portfolios against an anticipated market correction, dividend aristocrats in the consumer products industry Coca-Cola (KO) and Colgate-Palmolive (CL) could attract significant attention. But which of these stocks is a better buy now? Let’s find out.

The Coca-Cola Company (KO) in Atlanta, Ga., and Colgate-Palmolive Company (CL) in New York City are two prominent players in the consumer products industry. KO owns or licenses, and markets beverage concentrates, finished sparkling soft-drinks brands, energy drinks, dairy, and syrups to fountain retailers such as restaurants and convenience stores. It operates through independent bottling partners, distributors, wholesalers, retailers, and bottling and distribution operators. In comparison, CL sells consumer products manufactured under oral, personal, homecare, and pet nutrition segments. It markets and sells its products to various retailers, wholesalers, e-commerce, and distributors.

Because factors including the resurgence of COVID-19 cases, high inflation, and geopolitical tensions, have led to significant market volatility, and many analysts predict a correction in the near term, investors are seeking ways to hedge their portfolios against such market movements. The ability to withstand market volatility thanks to near inelastic demand for products and consistent increases in dividends makes dividend aristocrats KO and CL well-positioned to attract significant investor attention.

While CL has declined 6% in price over the past three months, KO has advanced marginally. KO is a clear winner with 7.2% price gains versus CL’s marginal returns in terms of their past year’s performance. But which of these stocks is a better pick now? Let’s find out. 

Latest Developments

On April 19,  KO and Coca-Cola Beverages Africa (CCBA) announced plans to list CCBA as a publicly traded company on the Amsterdam and Johannesburg stock exchanges. As Africa becomes a key growth market for KO, this IPO should allow CCBA to operate as an independent, managed, and domiciled business and gain a broad, supportive, long-term investor base for the continued development of the business.

KO is scheduled to pay a $0.42 quarterly cash dividend on October 1, 2021.

On August 6, 2021, CL announced a strategic collaboration with Verily Life Sciences, an Alphabet Inc. (GOOGL) subsidiary focused on life sciences and healthcare, to conduct advanced oral health research as part of Verily’s ongoing Baseline Health Study to improve understanding of connections between oral health and overall human health. The effort marks CL’s commitment to accelerating and improving clinical research through the smart use of data, creative collaboration, and unrivaled technical capabilities.

CL is scheduled to pay a $0.45 quarterly cash dividend on November 15, 2021.

Recent Financial Results

For its fiscal second quarter, ended July 2, 2021, KO’s non-GAAP net operating revenues increased 41.1% year-over-year to $10.13 billion. The company’s non-GAAP gross profit came in at $6.22 billion, representing a 50.4% year-over-year improvement. Its non-GAAP operating income was $3.21 billion, up 49% from the prior-year period. While its non-GAAP net income increased 61.5% year-over-year to $2.93 billion, its non-GAAP EPS increased 61.9% to $0.68. The company had $9.19 billion in cash and cash equivalents as of July 2, 2021.

For its fiscal second quarter, ended June 30, 2021, CL’s revenue increased 9.3% year-over-year to $4.26 billion. The company’s gross profit came in at $2.56 billion, representing a 7.9% rise from the year-ago period. Its non-GAAP operating profit was   $970 million, indicating a 2.5% year-over-year improvement. CL’s non-GAAP net income was $683 million, up 7.6% from the prior-year period. Its non-GAAP EPS increased 8.1% year-over-year to $0.80. The company had $937 million in cash and cash equivalents as of June 30, 2021. 

Past and Expected Financial Performance

KO’s revenue and net income have grown at CAGRs of 2% and 50.3%, respectively, over the past three years. The company’s EPS has increased at a 51.8% CAGR over the past three years.

The stock pays a $1.68 dividend per share annually, which translates to a 3.11% yield. The company’s dividend has grown at a 3.9% rate over the past five years.

Analysts expect KO’s EPS to increase 5.5% in the current quarter, ending September 30, 2021, 15.9% in the current year, and 7.5% next year. Its revenue is expected to improve 13.4% year-over-year in the current quarter, 15.1% in the current year, and 5.7% next year. The stock’s EPS is expected to grow at a 10.1% rate per annum over the next five years.

In comparison, CL’S revenue and net income have grown at CAGRs of 2.7% and 7.4%, respectively, over the past three years The company’s EPS has grown at an 8.6% CAGR over the past three years.

The stock pays a $1.80 dividend per share annually, which translates to a 2.36% yield. The company’s dividend has grown at a 2.9% rate over the past five years.

CL’s EPS is expected to grow 2.5% year-over-year in the current quarter, ending September 30, 2021, 5.6% in the current year, and 7.1% next year. Its revenue is expected to grow 6% year-over-year in the current quarter, 6.2% in the current year, and 3.7% next year. Analysts expect the stock’s EPS to grow at a 7.2% rate per annum over the next five years. 

Valuation

In terms of forward EV/Sales, KO is currently trading at 7.03x, which is 71.5% higher than CL’s 4.10x.

In terms of forward EV/EBITDA, KO’s 21.18x is 34.3% higher than CL’s 15.77x.  

Profitability

KO’s trailing-12-month revenue is almost 2.1 times what CL generates. Also, KO is more profitable, with a 35.7% EBITDA margin versus CL’s 26%.

KO’s 22.2% and 20.5% respective net income and levered free cash flow margins compare with CL’s 16% and 12.8%.

POWR Ratings

While CL has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, KO has an overall B grade, equating to Buy. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

KO has a B grade for Growth, which is consistent with its impressive year-over-year earnings growth. KO’s EBIT has increased 43.3% from the prior-year period. However, CL’s C grade for Growth is in sync with its lower earnings growth. CL’s EBIT has declined 55.5% in price over the past year.

KO has a B grade for Sentiment, which is consistent with favorable analyst estimates. Analysts expect KO’s EPS to grow 15.9% year-over-year in the current year to $37.97 billion. However, CL’s C grade for Sentiment is in sync with analysts’ relatively lower estimates. Its EPS is expected to come in at $17.49 billion for the current quarter, representing a 6.2% year-over-year improvement.

Of the 71 stocks in the C-rated Consumer Goods industry, CL is ranked #21. In comparison,  KO is ranked #10 of 38 stocks in the B-rated Beverages industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated KO and CL for Value, Momentum, Stability, and Quality. Get all CL ratings here. Also, click here to see the additional POWR Ratings for KO.

The Winner

Dividend aristocrats KO and CL could both attract investor attention amid  current market volatility. However, we think its higher profitability and better analyst sentiment make KO a better buy here. 

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Consumer Goods industry, and here for those in the Beverages industry.


KO shares were trading at $54.28 per share on Wednesday morning, up $0.23 (+0.43%). Year-to-date, KO has gained 1.31%, versus a 17.92% rise in the benchmark S&P 500 index during the same period.


About the Author: Sweta Vijayan


Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...


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