Key Points

• Coca-Cola expects steady revenue growth.

• McDonald's sales have struggled.

• Total-return investors will find one of these two intriguing.

• These 10 stocks could mint the next wave of millionaires ›

Coca-Cola (NYSE: KO) was founded in the late 1800s, while McDonald's (NYSE: MCD) traces its roots back to 1940. They have become two of the most well-known and popular consumer goods companies.

Past success doesn't provide any guarantees about the future, of course. Businesses need to evolve to remain relevant. With that, which company -- Coca-Cola or McDonald's -- has positioned itself better for the future and makes a better investment?

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Coca-Cola

Many people know about Coca-Cola's sodas, including its namesake brand and Sprite and Fanta. Among other drinks, it also sells water, sports drinks, juice, and plant-based beverages, which is important given consumers' changing tastes.

You can find Coca-Cola just about anywhere across the globe -- whether in grocery stores, restaurants, or stadiums. That makes it tough for other brands to compete given the powerful name recognition and distribution.

First-quarter revenue under generally accepted accounting principles dropped 2%, but that was largely due to foreign currency exchange. After stripping that out along with the impact of acquisitions and divestitures, revenue grew 6%. Adjusted operating income increased 10%.

The revenue increase was largely due to changes in prices and product mix, which added five percentage points. However, it didn't just rely on price increases. Higher volume contributed

one percentage point.

Most of Coca-Cola's beverages are produced in the markets in which they are sold. Hence, while it anticipates tariffs will raise costs, management said the impact will be "manageable." It's calling for a 5% to 6% increase in revenue this year.

McDonald's

Most people recognize McDonald's golden arches. But the vast majority of its restaurants -- 95% -- are franchised, not company owned. These produce about 60% of its annual revenue.

The company typically collects a royalty fee based on a percentage of a restaurant's sales along with rent under a franchise agreement. Since franchisees make capital investments, this is less capital-intensive and more cost-effective for McDonald's.

It does benefit from increased restaurant sales. But its locations have struggled to grow the top line amid a consumer base challenged by overall high prices, the chain's own price increases, and dietary changes.

McDonald's first-quarter same-store sales (comps) dropped 1%. At U.S. locations, which account for about 40% of sales, comps fell 3.6%. That was primarily caused by lower traffic, which means customers are turning away from the restaurants. Adjusted operating income fell 1%.

The choice

Neither Coca-Cola nor McDonald's has much appeal for investors looking for fast growth. Those days seem long gone. However, in the context of growth and income, which one offers better total return potential?

McDonald's core customer may feel some pressure from the overall economy, but I find missteps like price increases more troubling. Alienated customers who could rely on it for value pricing may not return so quickly.

Nonetheless, the market seems to feel optimistic about the company. The stock has gained 16.9% over the last year through July 7 compared to 11.9% for the S&P 500. However, that feels premature given McDonald's current sales challenge. I would hold off until you see evidence of increasing guest counts.

Turning to Coca-Cola, is the company worthy of your investment dollars? It has been executing pretty well despite economic challenges. Over the last year, the stock gained 11.4%, or 15.2% when including dividends. The S&P 500 returned 14.3% during this period.

The stock has become somewhat more expensive over the last year. The shares have a price-to-earnings ratio (P/E) of 28 compared to about 26 in the prior 12 months. However, that's less expensive than large-cap stocks as measured by the S&P 500, which has a P/E of 30.

With a relatively reasonable valuation, improving results, and a 2.9% dividend yield, Coca-Cola is the clear winner to me.

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Equity markets have dropped this year as President Donald Trump's tariffs have raised fears that the U.S. economy will fall into a recession. U.S. gross domestic product did shrink in the first quarter, and the S&P 500, though it has recovered from its earlier declines this year, is still down by more than 4% so far in 2025 as of May 6, and down by more than 8% from its peak.

However, market pullbacks give investors who are focused on the long term opportunities to pause and investigate companies with strong long-term prospects. It's also comforting to buy dividend-paying stocks, as those regular payouts can help enhance your returns. That's particularly true during uncertain times.

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These two companies have increased their payouts annually for more than 50 consecutive years, making them Dividend Kings. Those impressive track records mean they've not only consistently made payouts but increased them even during challenging economic times.

1. PepsiCo

PepsiCo (NASDAQ: PEP) sells beverages and foods under well-known brands like Pepsi, Mountain Dew, Gatorade, Cheetos, and Quaker. Still, its sales haven't been immune from the difficult overall economic environment.

Its sales increased by a tepid 1% in the first quarter, after factoring out the impacts of acquisitions, divestitures, and shifting foreign currency exchange rates. That increase was entirely attributable to price increases, which added 3 percentage points to the top line, as lower sales volumes subtracted 2 percentage points.

While no one can predict when the current complex economic headwinds will abate, they undoubtedly will at some point. When consumers return to their normal spending habits, PepsiCo will undoubtedly be one of the beneficiaries. Meanwhile, its management team has done a good job at controlling costs -- adjusted earnings per share grew by 5% in Q1.

In a positive sign, a couple of months ago, the board of directors announced a 5% increase in the quarterly dividend that will be distributed in June. That will extend PepsiCo's streak of payout hikes to 53 straight years -- and with a 78% payout ratio, it can afford those payments.

At the new $5.69 annual rate and its current share price, PepsiCo's stock has a 4.3% dividend yield. That's more than three times the S&P 500's yield of 1.3%.

The stock has fallen by more than 25% over the last year versus a 9.6% gain for the S&P 500. However, for patient investors, this has created a better valuation that creates a buying opportunity. PepsiCo's price-to-earnings (P/E) ratio stands at around 19 compared to 27 a year ago. Meanwhile, the S&P 500 has a P/E ratio of about 27.

2. Target

Target (NYSE: TGT) has grown into a popular shopping destination by offering differentiated merchandise. Many times, you might only find the items at Target.

Its sales have also been impacted by customers paying more for everyday essentials like food. In its fiscal fourth quarter, which ended on Feb. 1, same-store sales (comps) increased just 1.5%.

Positively, people still visited Target's stores and website. That's evidenced by the 2.1% increase in the number of transactions. They spent less on each visit, though, with the average transaction size down by 0.6%.

The company's gross margin contracted from 26.6% to 26.2% due in part to markdowns and higher supply chain costs. Looking ahead, higher tariffs create short-term uncertainty that may raise Target's costs and potentially hurt sales and margins. However, long-term investors should not get discouraged.

After all, the increased traffic shows that people haven't abandoned Target. They're just spending less. When their personal economic situation improves, it seems likely that they'll go back to spending more money at Target.

While waiting for the improvement, Target shareholders can enjoy its 4.6% dividend yield. When the board of directors raised dividends last June, it ran the company's streak of boosts to 53 consecutive years.

The streak doesn't seem like it will get broken anytime soon based on the company's free cash flow (FCF). Last year, the company generated $4.5 billion in FCF and paid out $2 billion in dividends.

The stock has tested investors' patience with a price drop of more than 40% over the last year. However, the share price looks compelling with its trailing P/E falling from 18 to below 11.

That suggests an opportunity to collect dividends and benefit from capital appreciation.

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The stock market's sharp sell-off is testing investors' patience. The recent tariff implementations and pauses have created a lot of near-term uncertainty.

That's particularly true for global retailers like Walmart (NYSE: WMT) and Target (NYSE: TGT) that sell goods and source materials in different countries. However, with overall stocks down, you can use this as a buying opportunity -- if the long-term fundamentals remain sound.

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Which one of these two retail giants offers better investment potential for those planning to buy and hold for the long haul?

Walmart

Walmart operates namesake stores in the U.S. and internationally. It also runs Sam's Club, a membership club with warehouses in the U.S. and Puerto Rico. The Walmart U.S. business accounted for 69% of last year's $676.3 billion in sales.

The business was founded on keeping costs and prices ultra-low, and that remains true. Management continues to invest heavily in technology that combines its physical stores with e-commerce to offer convenience and fast delivery.

For instance, almost all U.S. Walmart stores have same-day pickup and delivery. Management also launched Walmart+, a subscription service that offers free shipping, discounts on gas, and a more efficient checkout process, a few years ago.

The low prices and convenience continue to draw customers. The Walmart U.S. segment saw same-store sales (comps) increase 4.6% in its fiscal 2025 fourth quarter. Higher traffic contributed 2.8 percentage points. with increased spending accounting for the balance. This period ended on Jan. 31.

The company remains highly profitable, putting it in a good position to increase investments to stay ahead of the competition. Fourth-quarter operating income, adjusted for certain non-operating expenses and excluding foreign currency fluctuations, grew 9.4% to $7.9 billion.

Walmart's share price hasn't been immune from the recent stock market sell-off. The stock has dropped 0.8% in 2025 (through April 9) versus 7.2% for the S&P 500 index, although that index fell more during the recent market downturn.

That valuation has remained constant since the start of the year. The stock has a price-to-earnings (P/E) ratio of 37.

Target

Target sells a wide array of goods, including apparel, beauty, home furnishings, food/beverage, and household essentials. It aims to differentiate itself by offering merchandise under its own brands and those sold exclusively at its stores and website.

The company's sales have been hurt lately as consumers have focused on basic items in the wake of rising costs. Still, Target's fiscal fourth-quarter comps increased 1.5%, driven by higher traffic that contributed 2.1 percentage points. The amount customers spent dropped 0.6 percentage points. The period ended on Feb. 1

Target's gross margin contracted 0.4 percentage points to 26.2%. That's due in part to higher promotional activity and markdowns.

Although management has given a cautious outlook for the year, including flat comps, the higher traffic shows people still like to shop at Target. They're just spending less right now and are drawn to discounts. That's likely due to larger economic forces that will subside at some point.

Target's stock price has taken it on the chin. The share price has fallen nearly 28% this year. That's partly due to tariff implementations and the feared economic effect on Target's costs and prices that will impact short-term profitability.

The shares have become cheaper, however. The stock trades at a P/E of 11, down from 14 at the start of 2025.

Which retailer to choose?

I like both retailers. Walmart's ultra-low prices will always attract customers. It's particularly true during challenging economic times. That's why its share price has held up relatively well.

Target depends on differentiated merchandise, and its customers will likely trade down to lower-priced merchandise when tough times come. But over the long run, people will likely return to Target.

Based on Target's attractive valuation and favorable long-term outlook, I'd choose its stock over Walmart right now.

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Lawrence Rothman, CFA has positions in Target. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.