Today we're comparing two consumer goods powerhouses to determine which is the better investment. Procter & Gamble (NYSE:PG) and PepsiCo (NASDAQ:PEP) have both had to undergo significant changes to improve operating performance in recent years. Over the last decade, many new upstarts selling products marketed as "all natural" have pressured sales growth of products across the grocery store aisles from laundry detergent to snack food. This trend has forced the heavyweights like P&G and Pepsi, with deep pockets to invest in marketing and innovation, to get better at what they do.

Better marketing and execution have led to improved sales growth for both companies over the last year. Procter & Gamble stock has been the better performer over the last year, up 49%, beating Pepsi's return of 29%. But both stocks have performed roughly in line with each other over the last three- and five-year periods. 

We'll compare both stocks on dividends, growth expectations, and valuation to determine which one is the better buy for investors today.

Two small silver figurines of a bull and a bear facing off on top of sheets of stock charts and market quotes.

Image source: Getty Images.

Dividends

Many investors like consumer staples stocks for their dividends. Procter & Gamble and PepsiCo certainly have much to offer here. 

P&G started paying dividends when Benjamin Harrison was president and has increased the dividend for 63 years straight  -- a true Dividend King. Over the last year, the company paid out 63% of its free cash flow in dividends, or $7.5 billion. The stock currently pays a quarterly dividend of $0.7459 per share for a dividend yield of 2.46%. 

Pepsi has raised its dividend for 47 consecutive years. The maker of Quaker Oats and Gatorade offers a higher yield of 2.77% based on a quarterly payout of $0.955 per share. Pepsi's yield is higher because it pays out more of its free cash flow as dividends, or 87% over the last 12 months. 

I would call P&G the better dividend stock. The maker of Tide and Oral-B toothbrushes could match Pepsi's current dividend yield by raising its payout ratio as a percentage of free cash flow to just 70%, which is much lower than Pepsi.  

Advantage: Procter & Gamble.

Which company is growing faster?

On growth, Procter & Gamble appears to have more momentum than Pepsi right now. Sales and earnings have accelerated in each quarter over the last year, as you can see in the table.

Procter & Gamble
Metric Q4 2019 Q3 2019 Q2 2019 Q1 2019
Organic sales growth 7% 5% 4% 4%
Adjusted EPS growth 26% 15% 13% 11%

Data source: Earnings press releases. Procter & Gamble's fiscal year ends in June.

As you can see in the next table, P&G's recent performance looks much stronger than the maker of Doritos:

PepsiCo
Metric Q3 2019 Q2 2019 Q1 2019 Q4 2018
Organic sales growth 4.3% 4.5% 5.2% 4.6%
Adjusted EPS growth (decline) (1%) (2%) 3% 17%

Data source: Earnings press releases.

P&G is coming off its best quarter of growth in more than a decade. The company is making strides across several areas that are crucial for growth, including marketing, packaging, product performance, and maintaining good relations with retailers. Solid retail execution has helped P&G win additional shelf space to further reinforce its various brands in the minds of consumers. 

It's also important that P&G was able to drive accelerating sales growth over the last year through steady increases in prices every quarter. Volume growth has been consistent, too, except for the Gillette business, which has faced stiff competition from cheaper alternatives. 

Pepsi saw core earnings per share grow by 9% last year adjusted for currency, but profits are down slightly in 2019, stemming from higher spending in marketing and infrastructure to drive growth. 

The key difference between the two companies right now is that P&G is delivering solid gains on the top line while also showing healthy improvement in margins. Pepsi has had to increase spending on marketing by 12% this year, as well as invest heavily in the supply chain, to show just a small improvement in sales growth. On the other side, P&G has shown much better acceleration in sales while keeping a lid on operating costs.

Looking ahead, analysts expect P&G to grow earnings by 7.3% annually over the next five years, whereas Pepsi is expected to grow earnings just 4.4% per year. 

Advantage: Procter & Gamble.

Valuation

The scales are tilting in Procter & Gamble's favor, but we can't ignore valuation in a better-buy contest.

I believe investors shouldn't bet their hard-earned cash on just one valuation metric. It's always a good idea to check several metrics before deciding which stock is the better value. With that said, here's how both measure up: 

Metric Procter & Gamble PepsiCo
Market cap $303.04 billion $191.93 billion
Forward P/E 23.42 23.09
PEG ratio 3.45 5.73
EV/EBITDA 19.00 17.22

Data source: Yahoo! Finance.

The market capitalization (share price times shares outstanding) is to give you an idea of the size difference between the two companies. Pepsi is the better value on every valuation metric except the price-to-earnings-growth (PEG) ratio. 

P&G has a lower PEG ratio because it is expected to grow earnings faster over the next five years. Given that both stocks' forward P/E is very close, I would call P&G the better value based on better growth prospects.

Advantage: Procter & Gamble.

Procter & Gamble is the better buy

Both stocks are close on dividends and valuation. If you're solely looking for income, you really can't go wrong with either. But P&G is growing faster, which gives the edge to the maker of Bounty paper towels.