COST vs PEP: Dividend Comparison
Dividend data as of
Costco Wholesale Corp /New (COST) and Pepsico Inc (PEP) are both in the Consumer Staples sector, making them natural rivals for dividend investors. PEP offers a significantly higher 3.37% yield compared to COST's 0.52%, a gap of 2.85%. For dividend growth, COST leads with a 5-year CAGR of 20.9% versus PEP's 7.3%. COST holds the edge in dividend safety with a "Safe" rating. PEP is a Dividend Aristocrat with 27 years of consecutive increases.
Verdict
Yield Analysis
PEP yields 2.85% more than COST. In dollar terms, COST pays $5.06/share vs PEP's $5.62/share annually.
Dividend Growth
COST: Dividend growth is slowing — the 3-year CAGR of -47.1% trails the 5-year rate of 20.9% and the 10-year rate of 15.8%.
PEP: Dividend growth is slowing — the 3-year CAGR of 6.6% trails the 5-year rate of 7.3% and the 10-year rate of 7.4%.
Dividend Safety
COST: The payout ratio of 27% is well within sustainable levels, leaving room for future increases. Earnings cover the dividend 3.7x.
PEP: The payout ratio of 94% is elevated, which may indicate the dividend could be cut if earnings decline. Earnings cover the dividend 1.1x.
Estimated Annual Dividend Income
Based on current dividend yields. Actual income may vary.
What does $10,000 buy in COST vs PEP today?
At $1015.00 per share, $10,000 buys about 9.9 shares of Costco Wholesale Corp /New (COST). Each share pays $5.06 per year in dividends, so the position starts out generating roughly $50 per year — about $4 a month.
At $166.01 per share, $10,000 buys about 60.2 shares of Pepsico Inc (PEP). Each share pays $5.62 per year in dividends, so the position starts out generating roughly $339 per year — about $28 a month.
PEP is the larger income stream from day one: $289 per year more on the same $10,000 invested.
What could $10,000 of COST or PEP income look like in 10 years?
Costco Wholesale Corp /New (COST) has raised its dividend about 20.9% a year over the past five years. If that pace held, the $52 per year that $10,000 generates today at the current 0.52% yield would reach $347 per year by 2036 — a 3.5% yield on the original cost.
Pepsico Inc (PEP) has raised its dividend about 7.3% a year over the past five years. If that pace held, the $337 per year that $10,000 generates today at the current 3.37% yield would reach $679 per year by 2036 — a 6.8% yield on the original cost.
On those trailing rates, PEP pays more in 2036: $679 versus $347 per year. The projection assumes each five-year growth rate persists and no dividends are reinvested — real payouts will differ.
When would COST's dividend growth overtake PEP's higher yield?
Costco Wholesale Corp /New (COST) yields less today (0.52% vs 3.37%) but has grown its dividend faster — 20.9% vs 7.3% a year over the past five years. If both trends continued, a $10,000 position in COST would start out-earning the same position in PEP around 2042 (roughly 16 years from now), paying about $1,083 per year at the crossover. Before that point, PEP pays more each year; after it, the gap compounds in COST's favor.
Can COST and PEP afford their dividends?
Costco Wholesale Corp /New (COST) earns $18.65 per share against $5.06 paid out in dividends — 3.7x coverage (a 27% payout ratio).
Pepsico Inc (PEP) earns $5.99 per share against $5.62 paid out in dividends — 1.1x coverage (a 94% payout ratio).
COST's wider coverage leaves more cushion if earnings dip. As a rule of thumb, coverage below about 1.5x (a payout ratio above ~65%) is where a dividend starts to look stretched — worth watching for PEP if earnings weaken.
Which fits an early-retirement income portfolio better, COST or PEP?
For income you need right now, Pepsico Inc (PEP) leads: $100,000 invested today pays about $281 a month at the current 3.37% yield, versus $43 a month from Costco Wholesale Corp /New (COST) at 0.52%.
With a decade or more before the income is needed, COST's faster dividend growth (20.9% vs 7.3% a year) matters more than the starting yield — raises compound into the larger paycheck over time.
On consistency: PEP has raised its dividend 27 consecutive years.
Many income investors simply hold both — the mix pairs current yield with growth and spreads single-name risk. Whichever way you lean, dividends are never guaranteed; recheck the payout each quarter rather than setting and forgetting.
$10,000 with DRIP: projected annual income
If each holding keeps raising its dividend at its real 5-year rate and every payment is reinvested, a $10,000 position pays $366/yr in COST vs $946/yr in PEP by year 10.
Assumes dividends are reinvested at the current yield and grow at each holding's trailing 5-year dividend CAGR. A projection, not a prediction — no price appreciation modeled.
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