Cramer Picks Pepsi Over Coca-Cola as PEP Yield Tops 4% Amid Five-Year Underperformance

Jim Cramer has declared PepsiCo (NASDAQ:PEP) the superior investment over Coca-Cola (NYSE:KO), citing a dividend yield exceeding 4% and a significantly lower price-to-earnings ratio. Despite Coca-Cola’s substantial price appreciation, Cramer’s thesis rests on the valuation gap created by Pepsi’s five-year underperformance, positioning the snack and beverage giant as a value play for income-focused traders.

Market Context

The divergence between the two beverage titans has been stark over the recent period. Coca-Cola shares have surged 28.09% year-to-date and 83.42% over the last five years, trading at $88.40. In contrast, PepsiCo has struggled, with shares down 0.6% year-to-date and up only 4.51% over five years, currently priced at $138.44. This performance gap has driven Pepsi’s yield higher, creating the 'accidental high yield' setup that Cramer highlighted on Mad Money.

Analysis

Cramer’s argument focuses on relative valuation rather than absolute price levels. He noted that while Coca-Cola has seen strong momentum, PepsiCo offers a cheaper entry point with a P/E ratio of 23 compared to Coca-Cola’s 29. The analyst emphasized that share price alone does not determine valuation, urging investors to look at the fundamentals. PepsiCo’s extended dividend growth streak of 54 consecutive years and a $10 billion buyback authorization through 2030 provide a floor for the stock, while Coca-Cola’s recent rally has compressed its yield to 2.32%.

Key Numbers

- PepsiCo (PEP) Price: $138.44

- Coca-Cola (KO) Price: $88.40

- PEP Dividend Yield: 4.04%

- KO Dividend Yield: 2.32%

- PEP P/E Ratio: 23

- KO P/E Ratio: 29

- PEP 5-Year Return: +4.51%

- KO 5-Year Return: +83.42%

- PEP Quarterly Dividend: $1.48 per share

- PEP Buyback Authorization: $10 billion through Feb 28, 2030

What to Watch

Traders should monitor upcoming quarterly dividend ex-dates for PEP, which pays $1.48 per share, as income funds may continue to rotate into the higher-yielding stock. Key support levels for PEP are anchored by its 54-year dividend growth streak and the $10 billion buyback authorization running through 2030, which may limit downside risk. Conversely, KO’s momentum could stall if its 28% YTD rally leads to profit-taking, especially as its yield compresses to 2.32%. Investors should watch for any shifts in relative valuation metrics, particularly the P/E gap between PEP’s 23 and KO’s 29, as this spread is central to Cramer’s value thesis.