Instead, the 'States have long been the hunting ground for the world's best growth stocks. That's not surprising when we consider the calibre of long-time winners like NVIDIA, Tesla, Mastercard, Amazon, Alphabet, Netflix, and Microsoft, amongst many others.

It's true that dividends from US stocks don't come with franking credits attached. But that doesn't mean that Australian investors can't obtain a decent income from stocks across the Pacific.

Indeed, the US markets are home to some of the world's most impressive dividend growth streaks. Companies like Coca-Cola, Altria, Johnson & Johnson, Pepsico and Colgate-Palmolive have delivered an annual dividend increase every single year for at least 50 years. That's not something that many ASX share can claim.

Sure, if one buys a US-based index fund, they can expect a lot less in dividend income upfront compared to buying an ASX index fund. To illustrate, the iShares Core S&P/ASX 200 ETF (ASX: IOZ) is currently trading with a trailing dividend distribution yield of 3.42%. In contrast, the iShares S&P 500 ETF (ASX: IVV), which tracks the most popular gauge of the American markets, will only get you a trailing yield of 1.1% at current pricing.

Can US stocks deliver decent passive income?

Let's assume for a moment that these two index funds pay out the same dividend distributions over the coming 12 months as the past 12. If that's the case, an investor would need to invest just over $700,000 in the ASX index fund of they wished to receive roughly $2,000 a month in passive dividend income. But for the S&P 500 ETF, the amount required for that same level of passive income would stand at just under $2.2 million.

However, there are easier ways to get a higher yield from US stocks. Probably the easiest is by buying higher-yielding passive income stocks. Not all of the highest calibre companies on the US markets are growth beasts. Let's start with some of the dividend stars we listed above. right now, Coca Cola shares are trading with a dividend yield of 2.72%. Pepsico offers 3.51%, while Altria has a whopping 6.32% on the table.

No dividend is safe, no matter how long its streak of annual increases. But it does give us a guide that a company knows how to make consistent profits through all kinds of economic cycles.

A combination of these kinds of shares can easily help an ASX passive income investor get at least as much of a yield form the US markets as is available on the ASX, and perhaps even more.

The post How much do you need to invest in US stocks to earn a $2,000 monthly passive income? appeared first on The Motley Fool Australia.

This index fund has soared in popularity amongst ASX investors in recent years, thanks to its future-facing composition and tech-heavy exposure.

As my Fool colleague Bronwyn reported late last month, NDQ is one of the most sought-after ASX ETFs on our market. It is currently the seventh-most popular fund by funds under management. We also recently covered how NDQ was the fourth most-bought fund for customers using the Stake brokerage platform over the second half of the 2025 financial year.

The Betashares Nasdaq 100 ETF is a relatively simple index fund, covering the largest non-financial stocks listed on the US' Nasdaq stock exchange. The Nasdaq is known for housing most of America's best-known tech stocks. That includes all of the famous 'Magnificent 7', as well as companies like Airbnb, Netflix, Adobe and PayPal.

It's not just a tech ETF, though. Some other names that can be found in NDQ's holdings include Starbucks, Pepsico, Monster Beverage and Cadbury-owner Mondelez International.

But let's get down to the numbers.

How much would $10,000 invested in the NDQ ETF in 2020 be worth today?

Five years ago, on 5 November 2020, NDQ's ASX units were being priced at $27.59 each. Today, at the time of writing anyway, those same units are worth $57.85 each. That's a gain worth 110%. Or approximately 15.95% per annum.

Not bad. This means investors would have more than doubled their capital investment alone, with that $10,000 turning into $20,968 or so today. Most of these gains came from simple stock price appreciation. However, some would also have come from currency returns too.

Although NDQ is an ASX-listed ETF, its portfolio is priced in US dollars. That means that its returns need to be converted from US dollars to Australian dollars before we can assess them. The Australian dollar is almost 10% lower today against the greenback than it was five years ago. As a result, his would have provided our returns with an additional (and meaningful) boost.

However, that's not where the story ends. As Betashares NASDAQ 100 ETF investors would know, this fund also pays out periodic dividend distributions.

Since late 2020 and today, investors have enjoyed around $4.32 in dividend distributions per NDQ unit. That would see our investor bank another $1,636 in returns over the five-year period.

As such, we can conclude that a $10,000 investment in the ASX's NDQ ETF would be worth a total of roughly $22,603.50 right now. Again, not bad.

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But if you're not sure which shares to buy, don't worry!

That's because there are plenty of exchange-traded funds (ETFs) out there for investors to choose from.

They give you instant diversification, exposure to global themes, and an easier way to build a long-term portfolio without trying to pick winners and losers.

With that in mind, here are five top ASX ETFs worth considering in October:

Betashares Nasdaq 100 ETF (ASX: NDQ)

For growth-focused investors, the Betashares Nasdaq 100 ETF is often the first stop they will make. And it isn't hard to see why. This ASX ETF tracks the Nasdaq 100 index, home to tech giants such as Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon.com (NASDAQ: AMZN), and Nvidia (NASDAQ: NVDA). These are the stocks leading the charge in areas like artificial intelligence, cloud computing, and digital advertising. While the ride can be volatile, the long-term returns from the Nasdaq have been outstanding.

Betashares Asia Technology Tigers ETF (ASX: ASIA)

The Betashares Asia Technology Tigers ETF is another top option to consider in October. It provides exposure to the next generation of technology leaders across Asia. Think of names like Taiwan Semiconductor Manufacturing Co (NYSE: TSM), Samsung Electronics, and Alibaba (NYSE: BABA). These are companies at the forefront of semiconductors, ecommerce, and cloud infrastructure. With Asia's middle class expanding rapidly, demand for digital services is only expected to grow, giving this ASX ETF significant long-term potential.

VanEck Morningstar Wide Moat ETF (ASX: MOAT)

The VanEck Morningstar Wide Moat ETF takes a different approach to the others. It invests in US companies that have durable competitive advantages and fair valuations. Its holdings change periodically but currently include Nike (NYSE: NKE), Walt Disney (NYSE: DIS), and PepsiCo (NASDAQ: PEP). The fund has a track record of outperforming broader US markets over time, making it a compelling buy-and-hold option.

Betashares Global Cybersecurity ETF (ASX: HACK)

Cybersecurity is quickly becoming a necessity for businesses. That makes the Betashares Global Cybersecurity ETF one of the most relevant ASX ETFs for the next decade. Its portfolio includes global leaders like CrowdStrike Holdings Inc (NASDAQ: CRWD), Palo Alto Networks Inc (NASDAQ: PANW), and Cisco Systems Inc (NASDAQ: CSCO). As threats escalate and spending on cybersecurity grows, this ETF could benefit from structural demand that doesn't depend on the economic cycle.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

For investors looking for core global exposure, the Vanguard MSCI Index International Shares ETF could be a standout pick in October. It provides access to more than 1,200 international stocks across the US, Europe, and Asia. Holdings include names such as Nestle (SWX: NESN), Toyota Motor Corp (TYO: 7203), and Roche Holding AG (SWX: ROG). With broad diversification and Vanguard's low-cost structure, this fund is a simple yet powerful way to capture long-term market growth.

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But even so, I still own quite a few shares that pay meaningful dividend income every year. As it happens, most of these investments have also delivered meaningful capital growth. Today, let's discuss the biggest dividend payers in my personal portfolio.

The three biggest dividend payers in my ASX share portfolio

MFF Capital Investments Ltd (ASX: MFF)

First up is the listed investment company (LIC), MFF Capital. MFF, like most LICs, invests in an underlying portfolio of shares. In this case, it is mostly American stocks. This LIC is run by Magellan Financial Group Ltd (ASX: MFG) co-founder Chris McKay. I like Mackay's Buffett-esque habit of buying high-quality companies at decent prices, and holding them for as long as possible.

Some of MFF's entrenched tenants include Mastercard, Visa, Amazon and Bank of America.

What's great about MFF is that it pays a strong, fully franked and rising dividend, despite its low-yield portfolio. Between 2021 and 2024, the company raised its annual (fully franked) payouts from 6.5 cents to 13 cents per share. Today, the company trades with a dividend yield of just under 3.4%, although I am lucky to have a yield-on-cost far higher than that. As such, MFF is one of the largest dividend payers in my ASX portfolio today.

Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO)

Next up, we have an entrant in this exchange-traded fund (ETF) from popular provider Vanguard. The Vanguard Australian Small Companies ETF. This index fund tracks around 170 shares from the smaller end of the ASX spectrum. I find it complements a classic index fund like the Vanguard Australian Shares Index ETF (ASX: VAS) that I also hold rather well.

It might not seem like it, but this ETF has paid me some massive dividends in recent years. When this ETF pays out its next dividend distribution on 16 July later this month, investors will have enjoyed a total of $5.37 in dividend distributions per unit. At the current VSO price of $68.40, this equates to a monstrous yield of 7.85%.

Schwab US Dividend Equity ETF (NYSE: SCHD)

Finally, a US-based ETF rounds out my portfolio's most lucrative dividend stocks. The Schwab US Dividend Equity ETF is a fund that holds a large portfolio of US stocks that all demonstrate reliable and rising dividend income potential. It holds a range of shares in this endeavour, including Texas Instruments, Chevron, PepsiCo, Altria and Coca-Cola.

Since SCHD ETF tends to hold only stocks that raise their dividends like clockwork, it can offer the same to its investors. I've only owned this ETF for a year or so, but already, my dividend income has risen meaningfully. Today, thanks in part to its dividends coming in US dollars, it is a major, and welcome, income payer in my portfolio.

The post Here are the 3 biggest dividend payers in my ASX stock portfolio today appeared first on The Motley Fool Australia.

As 2022 starts to close, it's only natural for investors to start peeking toward 2023. So far in 2022, the indexes have fared pretty miserably, with the Nasdaq-100 down 29% and the S&P 500 down 17%. Which one will have a better 2023?

Let's look at these indexes and their makeups and find out which is more likely to have a better 2023 ahead.

The indexes are highly concentrated on the top

At the top, the indexes have a lot of overlap.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

As you can see, Apple, Microsoft, Amazon, and Alphabet make up a considerable chunk of these indexes. In the S&P 500, they account for 19.83%. It's basically double for the Nasdaq-100, with that group making up 39.16% of the index. It's pretty straightforward: How these companies do will significantly steer how the overall index does.

While these three are tech-focused, they compete in different markets. Both Apple and Amazon are a good measure of the pulse of the consumer, as their sales are highly affected by consumer sentiment. If inflation cools, and consumers don't need to worry about rising grocery prices or housing costs, they may treat themselves to the latest device.

Alphabet and Microsoft are business-focused, but for different reasons. Alphabet's primary revenue stream is advertising, and many clients have pulled back their spending levels in 2022 due to the uncertain business environment. If the outlook improves, expect this revenue to return. Microsoft's cloud business and Office product suite indicate how willing businesses are to spend on their infrastructure, but Microsoft's consumer product division also indicates how individuals are doing. 

If the consumer gets stronger and business outlook improves, these four will boom. If that's the case, then the Nasdaq-100 will likely have a better year because it is concentrated in companies that will benefit the most. But if 2023 brings an economic recession, the S&P 500's diversity will help it to outperform the Nasdaq-100.

The companies outside the top five are very different

For the S&P 500, when you move out of the top five, the companies become much more diverse.

Data source: Slickcharts. Data as of Nov. 19.

Now, there are industrials, healthcare, and energy sectors represented, giving the index some much-needed balance. Looking at the top 20 reveals even more diversity, with financials, energy, and healthcare rounding the index out.

This is far from the case for the Nasdaq-100.

Data source: Slickcharts. Data as of November 19. Note: Both Alphabet class shares combined.

Besides Pepsi and Costco, these companies are more in the tech sector. But, unlike the S&P 500, it doesn't get much better outside the top 10, with most of the top 20 consisting of chipmakers, communication companies, and software businesses. Now, this probably isn't a surprise because the media often refers to this index as the "tech-heavy Nasdaq."

Still, tech businesses don't do well if the economy is struggling.

Does that mean you should write the Nasdaq-100 off? Absolutely not. Tech stocks tend to do very well in the recovery phases of a recession. Plus, the stock market is forward-looking, and stocks usually tend to do better during a recession than leading up to one.

That last tidbit of information should keep investors in the market, especially now with a recession, or at least an economic slowdown, imminent. However, if you're trying to decide which index to buy, you need to utilize the 2023 outlook. If you think 2023 will be a repeat of 2022, then the S&P 500 is the better choice. On the other hand, if you believe the economy will begin to recover and the Federal Reserve eases its interest rate hikes, then the Nasdaq-100 is the place to be.

One last point: There's nothing wrong with owning both indexes if you don't know what 2023 will bring. Personally, I think this is an intelligent strategy, as it gives investors the upside of recovery and the safety of a balanced investment.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Will the Nasdaq or S&P 500 have a better 2023? appeared first on The Motley Fool Australia.

For example, a retiree may appreciate the high dividends that an ASX bank share like Westpac Banking Corp (ASX: WBC) doles out. But a younger investor might wish to go for something with a bit more of a growth profile.

There's no right way to invest when it comes to shares (although there are many wrong ways).

With all this in mind, let's discuss how I allocate my own share market portfolio. As discussed above, this is what works for me, and my own strengths and weaknesses.

Now, I have many many different holdings across my portfolio. So I won't discuss all of them. But I will touch on some theses and strategies that I tend to follow, and explain why.

ASX shares, dividends and franking credits

So to start with, I own a mix of ASX and US shares. This is for many reasons. I love the franking credits and local knowledge that makes ASX investing so rewarding.

But I also love the currency, geographic and economic diversity that comes from investing in the United States. What's more, most of the best companies in the world call the US home.

My selection process is a rather simple one: I look for quality companies, usually with a strong brand, that have demonstrated competency and resiliency over a long period of time.

Let's start with the ASX shares. So I do like a share that pays dividends, preferably those of the fully franked variety. One of my oldest holdings is Telstra Corporation Ltd (ASX: TLS).

I bought Telstra back in 2018 when it was trading for under $2.80 a share. The market hated it then, but I saw a company with a dominant brand providing an essential service. I continue to hold it today for those same reasons.

Another ASX share that is a long-term favourite of mine is National Australia Bank Ltd (ASX: NAB). NAB doesn't have the pricing premium that Commonwealth Bank of Australia (ASX: CBA) does. But I still think it is one of the best-run ASX banks.

My favourite ASX share, though, is Washington H. Soul Pattinson and Co Ltd (ASX: SOL). I've discussed my love of Soul Patts before. But quite simply, it is a diversified market beater with an unmatched dividend record.

Looking across the pacific for my portfolio

Turning to US shares, and again my preference is strong brands and a proven track record. That's why my US shares include names like Apple, Microsoft, Mastercard, Alphabet, Nike and Amazon.

Tesla Inc (NASDAQ: TSLA) is another company that I own. When I first invested in the electric car maker, it was one of my riskier shares. But I have been delighted to see the company grow in size and scale (not to mention value).

Most of my other US shares are within the consumer staples sector. I love the resilience and stability that these kinds of shares can add to a portfolio, as well as the dividends, of course. Among my favourites are Coca-Cola, Pepsi, Starbucks and McDonald's.

Many of these companies have made a habit of raising their dividend every single year, so I have enjoyed watching my dividend income inch up steadily over the years.

So that's my ASX share portfolio in a nutshell and why I own the companies that I do. As I said, it may not be for everyone. But it works for me and my goals. And I sleep soundly every night. What more could one ask for?

The post Here's how I allocate my ASX share portfolio and why appeared first on The Motley Fool Australia.

Investors are getting hit on all sides by news that raises big concerns, and stocks haven't been able to inspire much confidence from traders on Wall Street.

The Nasdaq Composite (NASDAQINDEX: .IXIC) is now back to being down more than 20% from its highs, with a drop of more than 2% at 1.45pm ET that shows just how little conviction many investors have in high-growth stocks right now.

However, some stocks in the Nasdaq managed to hold up well even in Monday's decline. Moderna (NASDAQ: MRNA) was once again a beneficiary of troubling news on the health front, this time from China. Meanwhile, investors continued to look for safe havens, and that helped consumer products giant PepsiCo (NASDAQ: PEP) maintain a modest gain Monday afternoon.

China's COVID-19 cases boost vaccine stocks

Shares of Moderna were up more than 11% on Monday afternoon. The vaccine maker wasn't alone, with BioNTech (NASDAQ: BNTX) seeing gains of more than 12%.

The news that was behind the upward move for vaccine stocks came from China, where an outbreak of the Omicron variant of COVID-19 has prompted government officials to impose new lockdown measures and travel restrictions. More than 1,300 cases have appeared, with the majority coming from the northeastern province of Jilin. In addition, the city of Shenzhen has seen new cases, prompting a lockdown of the city. Even though the number of cases is relatively small, China has been adamant in following its zero-COVID policy.

Even more troubling is the fact that many of these cases involve a new subvariant of Omicron that shows signs of being more transmissible and more harmful for those who become infected. It's unknown how well Moderna and BioNTech's vaccines will protect against this "stealth Omicron" variant, but investors believe the companies can work to potentially refine their vaccines over time.

Meanwhile, Moderna announced a study with the goal of making a vaccine to protect people against HIV. Such a breakthrough would show that Moderna isn't a one-trick pony and prove once and for all the efficacy of its mRNA technology.

Pepsi is fizzing higher

Elsewhere, shares of PepsiCo were up a more modest 2%. The soft drink and snack foods manufacturer has traditionally had some defensive characteristics that make it an attractive investment for those seeking shelter from tough market environments.

PepsiCo has become a staple for millions of consumers around the world, and its brand name strength gives it a competitive advantage over many smaller companies in the food and beverage space. With many consumers devoted to its brands, PepsiCo is better able to pass on any cost increases in the ingredients that go into its products. That helps PepsiCo sustain its profit margin even when rival companies have to suffer declining earnings.

Dividend investors also appreciate PepsiCo. The stock yields 2.8% currently, and the company has an impressive streak of consistently boosting the amount of its quarterly dividend payments that dates back decades.

Perhaps best of all, PepsiCo hasn't been afraid to set trends rather than react to them. When consumers started demanding healthier options, PepsiCo was among the first major companies to respond aggressively by moving away from sugary soft drinks toward carbonated water and other now-popular beverage alternatives. Similar moves on the snack side of the business have built up even more loyalty for the company.

As inflation hits hard, PepsiCo is in a better position than most to avoid the brunt of higher prices. Stock investors appreciate that kind of protection now more than ever.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The only problem for ASX investors is that the Nasdaq, as you might have gathered by now, is an American exchange. As such, its companies are not available on the ASX. Well, not directly.

The BetaShares Nasdaq 100 ETF (ASX: NDQ) is available on the ASX however. This exchange-traded fund (ETF) is designed to mirror the Nasdaq 100 Index in Australian dollar terms. It contains all 100 of the top companies on the Nasdaq 100, including all of the tech giants mentioned above. Some other notable names that this ETF holds are PepsiCo, Inc (NASDAQ: PEP), NVIDIA Corporation (NASDAQ: NVDA), Netflix Inc (NASDAQ: NFLX), and PayPal Holdings Inc (NASDAQ: PYPL).

This ETF has been a top performer for its investors too. Since its inception in 2015, NDQ has returned an average of 21.01% per annum. Over the past 5 years, that expands to an average of 24.67% per annum. 3 years? 26.53%. And over the past year, we're looking at a return of 34.9%.

Not bad, one could objectively say.

Tech pullback a buying opportunity for NDQ?

So why is this tech ETF looking enticing today? Well, it's enjoying something of a rare pullback. NDQ units have lost around 3.8% since mid-April. As you might have gathered from the statistics above, this index does not seem to do pullbacks often. At least in recent years. This most recent pullback seems to be as a result of concern over future inflation — and the rising interest rates that tend to come with it.

The ASX is a top share market. But it doesn't do well, market capitalisation wise, in the technology space, at least compared to the US markets. That's where this ETF could prove useful for an ASX investor looking for more exposure: almost half of NDQ's holdings are in the information technology sector.

NDQ charges a management fee of 0.48% per annum.

The post This ASX tech ETF might be in the buy zone today. Here's why appeared first on The Motley Fool Australia.

iShares S&P 500 ETF (ASX: IVV)

This ETF from iShares charges one of the lowest management fees of any ASX ETF. It will set you back just 0.04% per annum for your position. That equates to $4 a year for every $10,000 invested. The S&P 500 Index (INDEXSP: .INX), which is the index this ETF tracks, holds 500 of the largest companies over in the United States.

The US is home to many of the best companies in the world. And I'm sure most investors would be happy with its top holdings. These include Apple Inc (NASDAQ: AAPL), Microsoft Corp (NASDAQ: MSFT), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Amazon.com Inc (NASDAQ: AMZN). As well as older, blue chip companies like Coca-Cola Co (NYSE: KO), Johnson & Johnson (NYSE: JNJ) and Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B).

As you can probably gather, tech companies form a large block of this ETF. But that could work out to be an advantage for an ASX investor, seeing as tech companies are dwarfed by miners and banks in our own S&P/ASX 200 Index (ASX: XJO).

This ETF also offers a very solid long-term performance track record. It has returned an average of 16.41% per annum for the past 10 years.

iShares Global Consumer Staples ETF (ASX: IXI)

This ETF runs on a slightly different track. It also holds a global portfolio of companies that all dwell in the consumer staples industry. Consumer staples can be loosely defined as any goods or services we can't live without. Think foods, drinks and household essentials, as well as vices like alcohol and tobacco. These kinds of companies can be useful in a portfolio, seeing as demand for their products is not usually affected by adverse economic conditions or changing technology.

Its largest holdings include companies like Coca Cola, PepsiCo Inc (NASDAQ: PEP), Nestle, L'Oreal, Procter & Gamble Co (NYSE: PG) and Colgate-Palmolive Company (NYSE: CL). But there's a couple of ASX companies in there too. These include Coles Group Ltd (ASX: COL) and Treasury Wine Estates Ltd (ASX: TWE).

54% of the Global Consumer Staples ETFs' holdings are US companies. But it also has significant exposure to the United Kingdom, Switzerland, France and Japan. It charges a management fee of 0.46% per annum, and has returned an average of 11.2% per annum over the past 10 years.

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The coronavirus pandemic is causing disruptions in Coca-Cola's (NYSE: KO) operations, without a doubt. Local governments have asked many restaurants and entertainment venues to either shut their doors completely or operate at significantly reduced capacity. That's hurting sales because those are places where people consume many of Coca-Cola's drinks. 

Still, when investing in a company, it is best to look at the long term. With positive developments on a coronavirus vaccine, it appears that there will be a return to normalcy sometime after the summer of 2021. Let's look at the company's prospects and determine if it's a good time to buy the stock. 

Prospects

Sales for Coca-Cola are struggling to recover as people worldwide are facing a recent surge of coronavirus cases. Still, CEO James Quincey, in the company's third-quarter earnings release, said: "While many challenges still lie ahead, our progress in the quarter gives me confidence we are on the right path."

Indeed, there are challenges. Coca-Cola's year-to-date cash flow from operations is down 20% from the year before.

Over the longer run, the company faces a headwind from people shifting away from sugary beverages. Moreover, the COVID-19 pandemic may leave some lingering long-term effects that will be negative for Coca-Cola. For instance, government stay-at-home orders may cause many restaurants to go out of business, which would hurt Coca-Cola consumption. 

That being said, Coca-Cola is a proven company with a decades-long history of quenching customers' thirst for tasty beverages. When the pandemic fades away, and people are comfortable leaving their homes again, consumption of the company's beverages will increase from current levels.

Coca-Cola is a leading player in the non-alcoholic drinks market, which is forecast to have a compounded annual growth rate of 6.8% over the next five years. 

Coca-Cola is not going to be growing revenue by double digits for any meaningful period of time. However, if it can grow sales in the middle to low single digits, that's enough for shareholders to have confidence in the company's recovery.

Valuations and profit margins 

PE = price-to-earnings, PS = price-to-sales, EV = enterprise value, EBITDA = earnings before interest, taxes, depreciation, and amortization. Data source: YCharts.

Coca-Cola is priced at a premium compared to its primary competitor PepsiCo (NASDAQ: PEP)(see chart above). However, that premium has narrowed since the start of the year, as PepsiCo's snack segment has helped it fare better during the pandemic. Moreover, that premium may be justified if you account for Coca-Cola's better operating performance. 

If you compare Coca-Cola to PepsiCo in terms of profit margins, Coca-Cola is clearly the winner (see chart below). This is especially true for operating profit margin. Admittedly, when both companies complete their fiscal year 2020, PepsiCo will likely narrow the differences. However, that might reverse when the pandemic has faded away. Coca-Cola generates more of its revenue from people consuming its products away from home than PepsiCo, and subsequently is more negatively affected by the pandemic.

Data source: YCharts.

The verdict

Coca-Cola is a long-running business success story, making shareholders richer while delighting consumers with tasty drinks for decades. The COVID-19 disease is creating difficulties that are slowing down sales in the near term. However, with vaccines against the virus rolling out in the US and other parts of the world, it could see operations return to normalcy by the end of 2022.

Meanwhile, the disruptions allow you to buy a superior consumer staples stock at a relatively small price-to-earnings (P/E) ratio premium over its competitor. Interested investors can feel good about starting a position in Coca Cola at these levels.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Coca-Cola stock a buy? appeared first on The Motley Fool Australia.

Investors were hoping for good news in Coca-Cola's (NYSE: KO) third-quarter earnings report. The soda giant three months ago revealed encouraging hints of a growth rebound, and optimism was running high that the company could follow that up with a positive announcement covering the seasonally strong third quarter.

The consumer staples titan largely met those high growth expectations last week, even though the earnings outlook still looks sluggish.

Let's dive right in.

Faster sales growth

Organic sales outpaced management's guidance just as they did last quarter, with revenue climbing 5% after adjusting for acquisitions, divestments, and currency exchange rate moves. That increase maintained plenty of distance between Coca-Cola and PepsiCo (NASDAQ: PEP), which earlier in the month announced a 3% uptick in its beverage business.

Coke saw solid growth contributions from a few of its biggest strategic initiatives. Its push to satisfy impulsive consumption by blanketing areas with coolers helped volumes surge in that niche in places like Brazil, for example. Popularity within the new Coca-Cola Zero Sugar brand allowed volume to tick higher in the core U.S. market, too, even as pricing increased. CEO James Quincey and his team said the beverage giant continued to gain global market share.

Coke is achieving a good balance between higher prices and rising volumes, with prices up 4% over the last nine months as volumes climbed 2%. Pepsi, for comparison, showed a 1% volume decline last quarter as part of its overall 3% organic growth in the beverage segment.

Steady profitability

Reported operating income fell 4% but kept pace with revenue after adjusting for currency exchange moves. On the positive side of the ledger, Coke benefited from higher prices and a shift toward high-margin products like single-serve drinks and smaller beverages. These gains were mostly offset by rising expenses, including marketing spending.

Overall, adjusted non-GAAP earnings fell 2% as operating margin held steady at 31% of sales. PepsiCo's core operating margin declined slightly last quarter. Management said the broader results show that the consumer staples giant's turnaround plan is working. "We are positioning the company to create a better shared future for all stakeholders," Quincey said in a press release, "by delivering on our vision and growing sustainably."

Changing the outlook

Executives backed up those bullish comments with positive changes to the short-term outlook. Coke now expects to grow organic sales by "at least" 5% compared to last quarter's 5% target and the 4% increase the company originally projected for the year. The operating income forecast got a similarly modest bump, up to between 12% and 13%.

Coke is still projecting roughly flat adjusted earnings per share, which matches up with the 1% downtick that PepsiCo is forecasting for 2019. Both companies see this year as an investment year when it comes to reported profits. Coke has predicted that the spending it is making in areas like its supply chain, product innovation, and marketing will lay the groundwork for faster growth in 2020 and beyond. Last week's report adds credence to that bullish outlook.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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