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When investors look for reliable dividend-paying companies, they typically consider factors such as the track record for paying and raising the dividend over time, if the company is an industry leader, if it is a growing business that can support a higher dividend expense, and the dividend yield.

Only four companies are members of the Dow Jones Industrial Average and have raised their dividends for at least 50 consecutive years. They are Johnson & Johnson, Walmart, Coca-Cola (NYSE: KO), and Procter & Gamble (NYSE: PG). Their dividend performance makes them Dividend Kings.

J&J stock has gone practically nowhere, up just 11.1% in the last five years at the time of this writing. Walmart is the complete opposite -- up 78% year to date. But Walmart now yields just 0.9%, making it a poor source of passive income.

So for the sake of this discussion, let's zero in on Coke and P&G -- two companies that continue to produce solid returns for investors and still have attractive yields -- to see which Dow Dividend King is the better buy before the end of the year.

Putting on a capital return clinic

P&G yields 2.3%, which is decent, but not great. However, what makes the company so impressive is that it has a track record for rewarding investors with dividends and stock buybacks.

Over the last decade, P&G has returned $147.8 billion to shareholders -- $79.9 billion through dividends and $67.9 billion through buybacks. If P&G didn't buy back so much of its own stock, it could easily sport a yield of around 4%. However, buybacks have been a great use of capital because they have helped accelerate earnings-per-share growth.

This stodgy household goods company can support such a massive capital return program because it operates industry-leading brands across many of the key consumer staples categories, including products for baby care, feminine care, fabrics, grooming, hair care, home care, oral care, skin care, personal healthcare, cleaning products, and more.

Instead of getting bogged down by administrative inefficiencies or blowing money on bad marketing programs, P&G uses its size to its advantage -- operating one of the best supply chain and distribution networks in the sector. These advantages, paired with P&G's pricing power, give the company high operating margins that exceed many of its peers. The higher the operating margin, the greater the portion of sales is converted into operating income, the more stock can be repurchased, and the more dividends can be paid.

In this vein, P&G operates a capital return snowball that compounds returns for its shareholders over time. It is, in many ways, a near-perfect business model for risk-averse investors seeking passive income.

But P&G's sales volume has slowed. For several years, it has relied mainly on pricing power and stock repurchases to grow earnings, not sales volume. So far, P&G has been able to navigate this difficult operating environment. But the company may soon reach a limit to how much it can raise prices before it sees consistent negative volume growth. In its recent quarter, P&G saw negative volume growth in three of its five segments and flat overall volume.

Coke's lower valuation and superior yield give it an edge

Coke shares P&G's issue of volume growth. The company's unit case volume declined by 1% in the recent quarter. Coke has good pricing power, but not as strong as P&G's. It also doesn't have as consistent of a stock repurchase program. So while P&G is still expecting 10% to 12% in diluted EPS growth in the coming fiscal year, Coke may have trouble delivering double-digit earnings growth if its volumes continue to stall.

Coke is taking action to address volume declines. It is investing in its core brands, as well as faster-growing brands like Topo Chico. Coke has an impeccable track record of marketing and developing brands, which should allow the company to navigate near-term headwinds and restore volumes without overly relying on price cuts.

As mentioned, P&G has an elite operating margin, but the company doesn't hold a candle to Coke. Coke's operating margin is more than double PepsiCo's, thanks to its bottling partnerships and outsourcing. In fact, Coke's operating margin is so high that it exceeds a younger, faster-growing company in Monster Beverage and is just a couple of percentage points lower than Apple.

AAPL Operating Margin (TTM) data by YCharts

Still, you could argue that P&G is a better business right now due to its superior earnings growth and elite pricing power. However, Coke stands out when considering valuation.

Coke and P&G both sport similar historical median price-to-earnings (P/E) ratios. But Coke's P/E ratio is below its historical average, whereas P&G's is above the average. What's more, P&G's forward P/E ratio is closer to around that average, while Coke's is just 22.3 -- suggesting P&G has to grow into its valuation while Coke is on track to get even cheaper if the stock price stays the same.

KO PE Ratio data by YCharts

To top it all off, Coke has a 3.1% dividend yield, which is quite a bit higher than P&G's 2.3% yield.

Go with Coke for income and value

Coke is a better buy than P&G because it has a better valuation and a higher yield. Both companies are going through similar issues because of strained consumer spending and limits to years of price increases. And while P&G has navigated these challenges a little better than Coke, it is still facing negative volume growth across most of its categories.

Some investors may prefer to scoop up shares of both companies. But if it were a choice between the two, Coke would be the better option, especially for investors looking to generate predictable passive income.

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*Stock Advisor returns as of December 2, 2024

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Kenvue, Monster Beverage, and Walmart. The Motley Fool recommends Johnson & Johnson and Unilever and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.