Which Is a Better Income Stock -- Coca-Cola or Starbucks?

Both Coca-Cola and Starbucks currently offer a dividend yield of 2.9%, according to a Motley Fool article. However, their payout ratios tell a starkly different story. Coca-Cola's payout ratio of 67.7% indicates a conservative and sustainable approach, with dividends comfortably covered by earnings. In contrast, Starbucks' payout ratio of 103.9% means the company is paying out more in dividends than it generates in net income, relying on cash reserves or debt to fund its payouts, as that Motley Fool article notes. This imbalance raises concerns about the longevity of Starbucks' dividend, particularly if earnings stagnate or decline. For income-focused investors, Coca-Cola's disciplined payout ratio provides a clearer path to dividend resilience.

Financial Performance: Earnings and Revenue Trends

Recent quarterly results highlight Coca-Cola's stronger financial foundation. In Q3 2025, Coca-Cola reported a 5% year-over-year revenue increase to $12.5 billion, driven by price/mix improvements and modest volume growth. Operating income surged by 59%, and earnings per share (EPS) rose 30% to $0.86, far exceeding expectations despite currency headwinds, according to a CoinCentral report. By contrast, Starbucks' Q3 2025 revenue of $9.5 billion-a 4% year-over-year increase-was accompanied by an adjusted EPS of $0.50, which missed the $0.65 forecast, per Starbucks' earnings release. While Starbucks benefits from international expansion and new store openings, its earnings volatility and reliance on non-core segments (e.g., licensed stores) introduce uncertainty.

Market Position and Industry Dynamics

Coca-Cola's dominance in the global soft drink market-backed by a brand value of $98 billion-provides a stable cash flow base, according to a Statista profile. Its extensive portfolio, including Diet Coke and Fanta, ensures broad consumer appeal, while its leadership in the ready-to-drink iced coffee market further diversifies revenue streams. Starbucks, meanwhile, commands 30.64% of the Restaurants Industry and leads in the coffeehouse sector, as shown in CSIMarket data. However, its growth is increasingly challenged by competitors like McDonald's (21.76% market share) and the need to innovate in saturated markets, a trend CSIMarket also highlights. The UK's RTD tea and coffee market, projected to grow at 5.36% annually through 2033, offers opportunities for Starbucks' high-protein coffee drinks, but such innovations require sustained R&D investment.

Long-Term Total Return Potential

While Starbucks' aggressive store expansion and product innovation could drive revenue growth, its current financial metrics suggest higher risk. Analysts project Starbucks' 2025 EPS to decline to $2.17 from $3.31 in 2024, according to an Inkl preview, with a rebound expected in 2026. Coca-Cola, by contrast, has consistently outperformed earnings expectations and maintains a robust operating margin of 32.0%, as noted in the CoinCentral report. Its focus on pricing power and cost efficiency positions it to navigate macroeconomic headwinds more effectively. For long-term investors, Coca-Cola's balance sheet strength and dividend discipline offer a more reliable foundation for compounding returns.

Conclusion

Coca-Cola emerges as the superior income stock for investors prioritizing dividend sustainability and long-term stability. Its conservative payout ratio, strong earnings growth, and entrenched market position provide a buffer against economic downturns. Starbucks, while innovative and growth-oriented, faces near-term challenges in sustaining its dividend and delivering consistent earnings. Investors willing to tolerate higher risk for potential upside may find Starbucks appealing, but for those seeking dependable income, Coca-Cola remains the clearer choice.