Nike (NKE -0.09%) and PepsiCo (PEP -1.85%) are two giants of the consumer goods sector. That status hasn't kept either company from putting up relatively disappointing performances as of late. Despite strong gains in the broader market over the last five years, Nike and PepsiCo stocks trade down roughly 77% and 16%, respectively, across the stretch.
On a positive note, substantial stock sell-offs and continued increases in dividend payouts helped push each stock's dividend yield to relatively high levels. Nike stock currently yields roughly 4.6%, and PepsiCo stock yields roughly 4.5%.
Which of these consumer goods dividend stocks is the better buy for investors seeking a lifetime of passive income?
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PepsiCo looks like the better long-term dividend play
Both PepsiCo and Nike face some significant challenges right now. While PepsiCo has seen its sales and earnings pressured by the rise of GLP-1s and other factors shifting consumer spending, Nike's big growth bets on the Chinese market and direct-to-consumer sales have not panned out as anticipated. But while both companies face headwinds, I think PepsiCo stands out as the better play for investors prioritizing dividend sustainability.
NASDAQ: PEP
Key Data Points
Both PepsiCo and Nike have payout ratios that look relatively high right now, at 74% and 77.5%, respectively. But PepsiCo's free cash flow payout ratio appears more manageable (95% for PepsiCo versus 110% for Nike). Nike's stock is more heavily beaten down and has greater potential for capital appreciation, but it's also facing more pressing business challenges.
While Nike stock could still be a good pick for dividend investors willing to take on more risk, PepsiCo's stronger dividend coverage ratios suggest it's the better buy for those prioritizing sustainable distributions.
