Dividend Kings are companies that have paid and raised their dividends for at least 50 consecutive years. This is no small feat, as a larger dividend expense has to be backed by earnings growth, implying the business is doing well.
Some folks choose to invest in Dividend Kings for their stability. But they can also be used to hit a passive income goal. For example, you can generate over $1,000 in passive income per year by investing $10,000 into each of the following three Dividend Kings: Coca-Cola (NYSE: KO) , PepsiCo (NASDAQ: PEP) , and Kenvue (NYSE: KVUE) . Here's why all three are worth buying now.
Comparing and contrasting Coke and Pepsi
Over the last 10 years, Pepsi hasn't been a market-outperforming stock. But it has put up solid gains, with its stock price nearly doubling, its dividend more than doubling, and stock buybacks helping to push the share count down by 8.6%. Pepsi has crushed Coca-Cola in all three metrics over the last three years.
PEP data by YCharts
However, the market cares more about where a company is going than where it has been. And right now, Coke looks like it has completed what has been a long overdue turnaround. Guidance calls for 9% to 10% organic ( non-GAAP ) revenue growth compared to 4% (non-GAAP) for Pepsi.
As you can see in the following chart, Coke's revenue is finally back to where it was a decade ago, but margins are higher. Meanwhile, Pepsi has enjoyed steady revenue growth paired with consistent margins.
KO Revenue (TTM) data by YCharts .
You'll also notice that Pepsi has roughly half the operating margin and double the revenue of Coke. But Coke is the more valuable company at a $298 billion market cap compared to $244 billion for Pepsi. Despite being rivals in the soft drink category, Coca-Cola and Pepsi are vastly different businesses. Coke has branched out beyond soft drinks and juices into coffee, tea, energy drinks, water, and sparking water. But it doesn't have food brands. Whereas Pepsi -- which owns Frito-Lay, Quaker Oats, and a variety of beverage brands -- is just as much a food company as it is a beverage company .
Coke uses a network of bottling partners that handle manufacturing, packaging, merchandise, and distribution of final branded products, which makes the business simple and higher margin. By contrast, Pepsi handles its own distribution, which makes the business bulkier and more complicated but allows it to partner with companies like Celsius to help with distribution .
Another difference is that Pepsi generates over half of its revenue from North America, whereas Coke is more dependent on international sales, with just 39% of second quarter 2024 revenue coming from North America.
Coke and Pepsi are fairly similar in terms of dividend health. Coke sports a 76% payout ratio and 2.9% yield and Pepsi holds a 73% payout ratio and 3.1% yield.
The valuations are also close, but again, Pepsi stock seems cheaper at the moment with a 25.2 price-to-earnings (P/E) ratio compared to 27.2 for Coke.
Ultimately, the better buy between the two behemoths comes down to which business model you like better and if you want diversification in beverages, food, and snacks or just beverages. Overall, I'd say Pepsi is the safer play, but Coke is firing on all cylinders right now and could remain a faster-growing business in the future.
A stodgy but stable stock
Kenvue had kept its dividend steady since spinning off from former parent company Johnson & Johnson (NYSE: JNJ) in August 2023. But that all changed on July 25 when it announced a modest 2.5% dividend raise, boosting the quarterly payout to $0.205 per share for an annualized yield of 4.4%. Kenvue now has a noticeably higher dividend than Johnson & Johnson's 3.1% yield. And for good reason.
J&J spun off Kenvue to focus on medical devices , diagnostics, and pharmaceuticals, leaving the consumer health business to Kenvue. Brands under the consumer health umbrella include household names like Band-Aid, Tylenol, Listerine, Neutrogena, and Aveeno. With such a strong lineup, investors may be wondering why Kenvue is down on the year and up just 7% from its 52-week low. The answer is likely a mix of factors, particularly the fact that investors are still getting used to Kenvue as a stand-alone company and want to see how it holds up in a challenging operating environment.
Many consumer-staples companies exhibited strong pricing power to combat inflation but are now focusing on growing volumes, even at the expense of margins, to offset weaker consumer spending. One concern with Kenvue is that it doesn't have the same level of pricing power as a company like Procter & Gamble (NYSE: PG) , which has a diverse range of products at different price points in multiple categories. For example, take Tide, Gain, and Downy brands of detergent. If a customer who used to buy Tide switches to Gain, P&G may make less profit, but still keeps the sale. Whereas if a consumer passes on Band-Aid for a generic brand, Kenvue loses out.
Kenvue's recent dividend raise keeps the dividend streak it inherited from J&J alive, ensuring Kenvue stays a Dividend King. Kenvue may not be as great a company as P&G , but it does have a higher yield and lower forward P/E ratio than many of its peers.
KVUE PE Ratio (Forward) data by YCharts .
Add it all up, and Kenvue is an excellent choice for risk-averse investors looking for a value stock to boost their passive income stream.
The disciplined way to build a passive income portfolio
Investing is about putting your hard-earned savings to work into companies that will be worth more in the future than they are today. Dividend investing takes that same approach but shifts the focus away from just potential capital gains to include dividend income. However, having a healthy portfolio takes more than just picking good companies.
One of the biggest mistakes investors can make is over-allocating to a company, theme, or industry. While putting $30,000 to work evenly across Coke, Pepsi, and Kenvue may make sense for a portfolio of $100,000 or more, going all in on just three stocks lacks diversification, especially when two of them are similar companies. The key is to have a balanced portfolio across different sectors that matches your risk tolerance and helps you achieve your financial goals.
Assigning the highest weighting to your best ideas is a winning strategy, but you don't want to bet the farm on a handful of stocks or jump in and out of stocks on impulse alone. Thankfully, there are plenty of candidates to consider now. The Vanguard Energy ETF yields 3% and includes over 100 holdings. The Vanguard Value ETF is a great buy if you're worried about a stock market sell-off. There are plenty of safe stocks that can do well no matter what the economy is doing. Visa balances growth, income, and value and is an excellent choice if you're not focused solely on passive income.
Coca-Cola, Pepsi, and Kenvue are all worthwhile additions to an income-originated portfolio. However, the dollar amount you should invest in each stock depends on what's already in your portfolio and its size.
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius, Kenvue, Vanguard Index Funds - Vanguard Value ETF, and Visa. The Motley Fool recommends Johnson & Johnson and Unilever and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy .
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