Better Dividend Stock for 2022: Coca Cola or Home Depot?
Investing in dividend stocks can be an excellent way to generate wealth in the long run. Coca-Cola (NYSE: KO) and Home Depot (NYSE: HD) are two dividend stocks that have delivered exceptional returns for shareholders for several decades.
Investors have the luxury of adding both to their portfolios if they wish. But hypothetically speaking, if you had to pick just one, which is the better dividend stock? Keep reading to find the answer.
Coca-Cola
Coca-Cola is one of a select few companies that qualify to be called
Such a long streak gives investors comfort that they will receive a dividend despite the ups and downs of economic cycles. Indeed,
In 2021, the economic reopening was good for Coca-Cola's business. In the nine months ended Oct. 1, sales increased by 20% from the same time the year prior. More importantly, at that same time, operating profit increased by 30%.
In the long run, a company cannot sustain paying a dividend that's more than profits, similar to how a household cannot spend more than it earns. For a brief time, it can spend more than income by dipping into savings or using a credit card, but eventually, spending must be at or below income. It's the same for businesses.
In that regard, Coca-Cola's dividend payout has been above sustainable levels, over 100% of profits (see chart below). Admittedly, Coca-Cola's profits were temporarily lowered because of the pandemic and might have
Home Depot
While Home Depot does not qualify as a Dividend King, it has a stellar history of paying dividends going back to 1987. The home improvement retailer has
In its most recent nine months ended Oct. 31, sales increased by 15.6% from the same time the year before, and operating income increased by 28.3%.
Interestingly, while Coca-Cola's dividend is a dangerously high portion of earnings, Home Depot has plenty of wiggle room (see chart above). That means even though
The verdict
Coca-Cola has the edge in dividend yield but has little room to increase its dividend payment. What's more, Coca-Cola's stock is selling at a premium compared to Home Depot's, at a price-to-earnings ratio of 29.6 versus 26.3.
Overall, both Coca-Cola and Home Depot are
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