2 Dividend Kings to Buy Now and 1 to Avoid Despite the Yield

The article favors Coca-Cola and Altria as dividend-income holdings, citing expected 2025-2028 EPS CAGRs of 7% and 13%, respectively, alongside forward dividend yields of 2.4% and 6.5%. Coca-Cola's asset-light concentrate model and 62% payout ratio support dividend growth, while Altria expects smoke-free products to generate at least $5B, or nearly one-quarter of projected revenue, by 2028. PepsiCo is viewed less favorably despite a 4.6% yield and projected 14% EPS CAGR, as its asset-heavy beverage operations, packaged-food competition, inflation pressures, GLP-1-related demand risks, and Quaker recalls weigh on North American performance.

Analysis

The relevant dispersion is not simply beverages versus snacks; it is royalty-like concentrate economics versus an integrated manufacturing, route-to-market, and food-input cost structure. KO can protect gross margin through mix, concentrate pricing, and limited capital intensity, while PEP must demonstrate that productivity offsets labor, packaging, freight, and reinvestment needs before the market awards a higher multiple. Over the next 1-3 months, North America organic-sales growth, price/mix versus volume, and incremental bottler/food restructuring costs matter more than dividend screens; a weak PEP volume print would likely widen the valuation gap despite its lower headline P/E.

MO's apparent earnings durability is substantially a price/mix and capital-return story, not evidence that reduced-risk products are yet economically equivalent to combustibles. The 6-18 month upside case requires smoke-free revenue to be accompanied by improving category margins and share rather than bought growth; FDA enforcement against illicit disposable vapes could be a meaningful, underappreciated catalyst for compliant nicotine-pouch and authorized-vapor participants. Conversely, cigarette-volume deterioration exceeding price realization, a more restrictive FDA action, or debt-funded buybacks that do not offset share loss would undermine both EPS growth and dividend confidence.

Contrarianly, PEP may be the more asymmetric name if its operational issues are transient: a modest recovery in North American volumes and normalization in recalled product lines could produce estimate revisions from a depressed base. That is not yet a standalone long because the market needs proof that recovery converts into free cash flow after capex; the cleaner expression is a measured KO/PEP relative-value position, with sizing increased only after evidence of continued PEP margin degradation or a failed turnaround milestone.

Key Decisions for Investors

• Initiate a 3-6 month long KO / short PEP pair, dollar-neutral, only if the relative ratio remains near post-earnings highs; target 8-12% relative return. Exit if PEP reports two consecutive quarters of North America volume stabilization plus operating-margin expansion, which would support a rapid valuation catch-up.
• Maintain MO as an income/value watch-to-buy rather than chase: add on post-results weakness only if combustible price/mix continues to offset volume declines and smoke-free gross-margin disclosure improves. Underwrite a 12-18 month mid-teens total-return path from yield plus buybacks; stop/reassess on a dividend-coverage deterioration or adverse FDA action affecting its nicotine portfolio.
• For PEP, require confirmation before covering the short leg: monitor quarterly organic volume, North America operating margin, recall-related costs, and free-cash-flow conversion. A guidance raise supported by volume—not further price increases—would falsify the near-term bearish thesis.
• Avoid treating KO's dividend profile as a low-risk entry at any valuation. Add only around earnings if global unit cases and concentrate-margin trends support mid-single-digit organic growth; a sustained volume slowdown or adverse FX-driven guidance reset would make the premium multiple vulnerable.