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

The article favors Coca-Cola and Altria as dividend investments, citing expected 2025-2028 EPS CAGRs of 7% and 13%, respectively, alongside forward dividend yields of 2.4% and 6.5%. Altria expects smoke-free products to generate at least $5 billion of revenue by 2028, nearly one-quarter of projected sales. PepsiCo is viewed less favorably despite an estimated 14% EPS CAGR and 4.6% forward yield, as its asset-heavy beverage operations, packaged-food competition, inflation pressures, GLP-1-related consumption shifts, and Quaker recalls weigh on its North American business.

Analysis

The investable distinction is not simply beverage versus snacks; it is incremental-margin durability. KO’s concentrate economics make organic revenue growth unusually efficient, while PEP must absorb manufacturing, route-to-market, and input-cost volatility before translating price into EPS. That supports a persistent KO/PEP valuation premium, but at 25x forward earnings KO needs mid-single-digit organic growth and stable FX to avoid a de-rating; the dividend alone offers limited downside protection if real yields rise.

MO’s upside is more asymmetric than its yield framing suggests: successful conversion of nicotine consumers to oral/vapor categories could extend customer lifetime value and reduce the terminal-value discount assigned to combustibles. The key risk is that smoke-free revenue can grow rapidly while remaining materially less profitable than cigarettes because of promotion, excise treatment, and competitive intensity. A weaker-than-expected contribution to operating income—not revenue—would challenge the rerating case over the next 6-18 months.

PEP’s low multiple already reflects visible execution problems, so an outright short is unattractive absent evidence that North American volume and Frito-Lay mix are deteriorating beyond current expectations. The nearer catalyst is margin recovery from productivity, recall normalization, and easier comparisons; if these flow through over the next 1-3 quarters, PEP could outperform despite structurally lower returns on capital. Consensus may be over-penalizing PEP’s complexity while underestimating KO’s multiple sensitivity to rates and emerging-market currency translation.

Key Decisions for Investors

• Initiate a 6-12 month long KO / short PEP pair, sized beta-neutral: the trade isolates superior asset-light incremental margins and reduces broad staples/rate exposure. Target 10-15% relative return; exit if PEP North America organic volume turns sustainably positive while KO organic growth falls below 4% for two consecutive quarters.
• Accumulate MO on weakness over a 12-18 month horizon, but size as a high-yield/value position rather than a pure growth compounder. Require smoke-free segment operating-profit disclosure or evidence of improving category margins; reduce if cigarette pricing no longer offsets volume declines or the payout ratio rises above sustainable free-cash-flow coverage.
• Do not short PEP at current valuation without a new negative fundamental catalyst. Instead, set an earnings watch for North America food volume, gross-margin recovery, and recall-related costs; a failure to show sequential improvement over the next two reports would reopen a tactical short or PEP put-spread opportunity.
• For KO, use a post-earnings or rate-driven pullback to add rather than chase. A meaningful rise in long-duration real yields or guidance implying FX/headwinds that push expected EPS growth below the mid-single digits would be the principal thesis falsifier.