Although we do not compete in the same industry, apple (NASDAQ:AAPL) and coca cola (NYSE:KO) We share many similarities as investment candidates. Both companies own two of his most valuable brands on the planet, which gives him significantly higher profit margins than his peers. And these are cash-generating machines that allow management to direct additional resources toward stock buybacks and increased dividend payments.
Coca-Cola and Apple are both favorites of billionaire investor Warren Buffett.
With these similarities in mind, let’s compare the two companies as dividend investments.
Profit rate
Apple and Coca-Cola generate similar profit margins reflecting their positions in the premium industry.Coke’s 30% operating profit margin is approximately double pepsicoThis is the result. On the other hand, Apple earns 10 percentage points more than its peers. garmin People competing in the technology device field.
Apple is doing a much better job of improving this metric over the next few years. The fastest growing segment is the services sector, which includes subscription products such as streaming music platforms. As the business leans in that direction, investors are looking for Apple’s margins and moving to companies like the tech giant that are more software-focused. microsoft And the margin is over 40%.
As the Coca-Cola industry matures, shareholders can expect even more modest profit margin expansion in the coming years. Drinks giants will be helped to move into more premium products, such as energy drinks and alcoholic beverages. However, options for increasing profits are limited.
Cash flow and dividend yield
In terms of instant income, Coke is the clear winner. This stock gives him a yield of over 3%. That’s more than double the yield he could get from owning the stock. S&P500 Through index funds. This is definitely one of the largest revenues in the consumer staples industry.
By contrast, Apple stock has a relatively low yield of 0.6%. But this is enough to put the iPhone maker ahead of other members of the Magnificent Seven, excluding Microsoft.
Both companies have strong cash flows, but Apple is an easy winner in this matchup. The tech giant generates more than $100 billion in free cash flow annually, compared to $10 billion for Coke. Most of these surplus resources will be devoted to attractive growth investments such as product innovation.
Apple is also actively spending on stock buybacks. But at some point in the future, tech giants will be free to shift more of their capital gains toward paying dividends.
It’s better to buy
Coca-Cola and Apple stocks have underperformed the market in recent months, making them relatively cheap compared to their peers. As a dividend investor, the choice between the two largely depends on whether you prioritize growth or stability.
Coca-Cola offers one of the most reliable dividends on the market, and its dividend has increased over the past 61 years. The company’s sales have been very stable and do not tend to decline significantly during economic downturns. And owning beverage stocks today will give you much higher yields.
In exchange for less stability and a lower initial yield, Apple stock offers some attractive advantages, primarily in the form of growth opportunities. The company’s dividend has more than doubled over the past decade, and the tech giant’s burgeoning cash flow and improving profit margins suggest the company can maintain its impressive pace of growth for years to come. .
Coca-Cola Co. ticks more boxes for dividend investors, but consider that Apple Inc. could grow into a great income investment in the future.
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Demitri Kalogeropoulos has a position at Apple. The Motley Fool has positions in and recommends Apple, Garmin, and Microsoft. The Motley Fool recommends the following options: His long January 2026 $395 call on Microsoft and his short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
“Better Dividend Stock Buy: Apple vs. Coca-Cola” was originally published by The Motley Fool.
