Coca-Cola (KO) and UPS both reported encouraging third-quarter results, but the market values them very differently: UPS' dividend yield is over 6%, nearly triple Coca-Cola's yield of more than 2%. Coca-Cola grew volumes 5% and comparable EPS 11% to $0.91, and raised its full-year EPS growth outlook to at least 11% (about $3.33 per share), yet at about $93 per share it trades around 28 times this year's earnings, versus about 23 times for the S&P 500. UPS is in the midst of a turnaround, with U.S. Domestic revenue per piece up 6.1% and full-year adjusted EPS guidance raised to $7.28 per share; at around $107 per share, it trades below 15 times earnings. Coca-Cola's dividend is judged safer: its $6.8 billion in dividends this year is covered by $11.4 billion of free cash flow, while UPS' $4.1 billion in dividends is close to its $4.2 billion year-to-date free cash flow. The author's models found UPS offers higher total return potential over the next decade if its turnaround succeeds, while Coca-Cola is the safer choice for durable dividend income.
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