Better Dividend Stocks to Buy: Apple vs. Coca Cola

Although they do not compete in the same industry, apologize (AAPL -1.22%) and Coca Cola (watt hours 2.14%) As investment candidates, they share many similarities. The company owns two of the most valuable brands on the planet, giving it a huge profit margin advantage over its competitors. And they are cash-generating machines, giving management additional resources to focus on increasing share buybacks and dividend payments.

Coca-Cola and Apple are both favorite companies of billionaire investor Warren Buffett.

With these similarities in mind, let’s stack both companies up against each other as dividend investments.

profit

Apple and Coca-Cola generate similar profit margins, reflecting their premium industry positions. Coca-Cola’s 30% operating profit margin is approximately double pepsicoThis is your result. Meanwhile, Apple earns 10 percentage points more than its competitors. garmin A person who competes in the field of technological devices.

Apple has a much better chance of improving this metric over the next few years. The fastest growth is occurring in the services sector, which includes subscription products such as streaming music platforms. As business tilts in that direction, investors are hoping to see Apple’s margins shift to software-focused tech giants such as: microsoft We offer margins of over 40%.

Coca-Cola shareholders can expect more modest margin expansion in the coming years due to the maturity of the industry. The beverage giant will benefit from its foray into more premium products such as energy drinks and alcoholic beverages. However, revenue growth options are limited.

Cash flow and dividend yield

In terms of immediate earnings, Coca-Cola is the clear winner. You will get a return of over 3% from this stock. That’s more than double the return you could earn by owning those stocks. S&P 500 With index funds, this is also one of the biggest yields in the consumer staples industry.

By contrast, Apple stock is yielding a relatively paltry 0.6%. But that’s enough to give the iPhone maker an edge over any other member of the “Magnificent Seven” except Microsoft.

Both companies have strong cash flows, but Apple easily wins this matchup. The tech giant generates more than $100 billion in free cash flow annually, compared to Coca-Cola’s $10 billion. Most of these excess resources are used for attractive growth investments, such as product innovation.

Apple is also investing aggressively in stock repurchases. But at some point in the future, the tech giant will be freer to convert capital gains into dividend payments.

The more you buy the better

Shares of Coca-Cola and Apple have underperformed the market in recent months and are trading relatively cheaply compared to their peers. As a dividend investor, choosing between the two largely comes down to your preference between growth and stability.

Coca-Cola offers one of the most reliable dividends on the market, and the dividend has increased every year for the past 61 years. The company’s sales are also very stable and do not decline significantly even during recessions. And you can earn even higher returns by owning beverage stocks today.

In exchange for low stability and low starting returns, Apple stock offers some tantalizing advantages, primarily in the form of growth opportunities. Dividends have more than doubled over the past decade, and the tech giant’s soaring cash flow and improving margins suggest it can maintain its fantastic growth rate for years to come.

While Coca-Cola checks more of the boxes for dividend investors, think about Apple as having the potential to grow into a fantastic income investment in the future.