Diageo vs. PepsiCo: Which Stock's Dividend Dominates?

(DailyFinance) - Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking -- dividend payments have made up about 40% of the market's average annual return from 1936 to the present day.

But few of us can invest in every single dividend-paying stock on the market, and even if we could, we're likely to find better gains by being selective. Today, two international beverage companies -- one a bit harder than the other -- will square off in a head-to-head battle to determine which offers a better dividend for your portfolio.

Tale of the tape
Formed in 1997 from the merger of Grand Metropolitan and Guinness, U.K. Based Diageo is the world's largest producer of spirits and is also one of the world's leading beer and wine producers. It owns some of the best-selling premium alcoholic brands, including Baileys, Johnnie Walker, Smirnoff, Captain Morgan, and Guinness. The company has offices in more than 80 countries, and it sells and markets products in over 180 countries around the world. Diageo was once as deeply enmeshed in the food industry as its competitor in this dividend contest, but between 2000 and 2002, Diageo divested its food businesses to focus entirely on alcoholic beverages. The company also acquired Seagram's spirits and wine business to augment its products portfolio in 2001.

In 1965, Pepsi-Cola and Frito-Lay merged to form PepsiCo , now the world's second-largest nonalcoholic beverage manufacturer. Headquartered in Purchase, N.Y., Pepsi owns a portfolio of more than 22 brands, which in addition to its eponymous cola include Mountain Dew, SoBe, and Aquafina, which are sold in over 200 countries or territories around the world. Since joining with Frito-Lay's deep roster of snack brands, PepsiCo's added a wide range of food and beverages brands; it bought Tropicana in 1998 and acquired Quaker Oats in 2001. However, PepsiCo, like Diageo, spun off its fast food holdings in 1997 to focus more on snack foods and sodas.