PepsiCo (PEP) has an excellent dividend history. It is a Dividend Aristocrat, a group of companies in the S&P 500 that have raised dividends for 25+ years. You can see the entire list of Dividend Aristocrats here. In five years, PepsiCo will become a Dividend King, a group of just 19 stocks that have 50+ years of annual dividend increases. To see the complete list of Dividend Kings, click here. PepsiCo will almost certainly get there.

However, PepsiCo’s dividend yield is currently 2.8%. Investors combing through food & beverage stocks in search of higher dividend payouts might come across B&G Foods (BGS). Based on its recent share price, B&G has a 4.4% dividend yield—much higher than PepsiCo.

Higher dividend yields are attractive, but dividend yield isn’t everything. There are other important factors to consider when deciding whether to invest in a company. This article will discuss three reasons to favor PepsiCo over B&G.

Reason #1: Brand Portfolio

PepsiCo is a global food and beverage company. PepsiCo has a large portfolio, stocked with category-leading brands. It has 22 brands that each generate $1 billion or more each year. Just a few of PepsiCo’s flagship billion-dollar brands include:

• Pepsi
• Mountain Dew
• Gatorade
• Quaker
• Doritos
• Cheetos
• Fritos
• Tostitos
• Tropicana
• Aquafina
• Lipton

PepsiCo also has a large portfolio of healthier products, designed to capitalize on the health-and-wellness trends. For example, PepsiCo has the Sabra, Stacy’s, Kevita, and Naked brands. It has a diversified business model, both in terms of product mix, as well as geographic markets.

Source: 2016 Annual Report, page 14

For its part, B&G is not as diversified. It predominantly manufactures shelf-stable, packaged foods, and it sells its products only in the U.S., Canada, and Puerto Rico. Some of B&G’s products include Baker’s Joy, Cream of Wheat, Emeril’s, Green Giant, Mrs. Dash, Ortega, Pirate’s Booty, and many more. It has a few strong brands, such as Green Giant. But for the most part, B&G’s brands do not lead their respective product categories. In other words, you won’t find many of B&G’s brands occupying the eye-level shelves at your local grocery store.

In 2016, B&G’s sales increased 44%, which looks extremely impressive at first. However, this growth was due entirely to acquisitions. B&G’s base sales declined 2% last year, due to falling unit volumes. Last year, B&G saw deterioration across several of its brands:

Source: 2016 Annual Report, page 43

B&G is also more concentrated in terms of its distribution. B&G’s top 10 retail customers accounted for 56% of its net sales in 2016. Its biggest individual customer—Wal-Mart (WMT)—made up nearly one-quarter of its sales. Meanwhile, Wal-Mart accounted for 13% of PepsiCo’s revenue last year. B&G is more reliant on a few major retailers, while PepsiCo is more spread out amongst retailers, convenience stores, and gas stations.

In the face of a consolidating retail environment, B&G may experience pressure from its retail customers to lower prices. This is particularly true given B&G’s reliance on Wal-Mart, which is notorious for pressuring suppliers. PepsiCo, given its size and brand strength, has an easier time defending its pricing.

Reason #2: Business Model & Balance Sheet

B&G’s core strategy is to acquire brands for revenue growth, then scale them for earnings growth. The company devotes most of its resources to acquisitions, instead of research and development. While PepsiCo also makes acquisitions, it is committed to internal investment to build its portfolio. PepsiCo has invested significantly in research and development:

• 2014 R&D expense of $718 million
• 2015 R&D expense of $754 million
• 2016 R&D expense of $760 million

PepsiCo invested $3.5 billion in R&D over the past five years. Its R&D spending has increased 45% since 2011. Innovation provides PepsiCo stronger growth potential than B&G. In 2016 PepsiCo’s organic revenue increased 3.7%, while B&G’s base sales declined for the year. And, PepsiCo has a stronger financial position. It has a healthy balance sheet, with $16 billion in cash and equivalents, compared with $30 billion of long-term debt.

B&G’s aggressive acquisition strategy has saddled it with a huge amount of debt. The company ended 2016 with $1.72 billion of long-term debt, compared with just $29 million of cash on hand. Consider that PepsiCo has a market capitalization of $162 billion, and an enterprise value of $182 billion. That means its net debt position is only about 12% above its market capitalization.

Meanwhile, B&G has a market capitalization of $2.8 billion but an enterprise value of $4.5 billion—its enterprise value is 61% more than its market capitalization. This indicates B&G has a much bigger amount of debt, relative to its capital structure, than PepsiCo. In addition, B&G’s serial acquisition strategy has left it with considerable intangible assets on the balance sheet, including $614 million of goodwill.

There are several potential pitfalls of a growth strategy that relies on aggressive acquisitions. B&G has a bloated balance sheet, which exposes investors to a number of risks:

• Risk of over-paying for acquired brands
• Exposure to rising interest rates
• High cost of capital
• Risk of running out of brands to acquire

If the companies B&G acquires do not perform up to expectations, the company could be vulnerable to future goodwill impairments. In 2016, B&G’s net interest expense increased 46%, which the company attributed to the higher level of indebtedness stemming from its acquisitions during the year.

Reason #3: Dividend Track Record

PepsiCo has increased its dividend for 45 years in a row, including its recent 7% raise. B&G has had a much spottier dividend track record. It has paid 50 consecutive quarterly dividends, since its initial public offering in 2004. However, its dividend reliability is questionable, given the following actions taken since its first dividend payment:

• March 2005-September 2008: Held dividend steady
• December 2008: Cut its dividend by 20%

Investors can count on PepsiCo for continued dividend increases in the high-single digit range for the foreseeable future, thanks to its high-quality brands and strong balance sheet. PepsiCo generated earnings-per-share of $4.36 in 2016, up 19% from the previous year. Its new annualized dividend rate of $3.22 per share amounts to a manageable payout ratio of 74%.

On the other hand, it is far from certain that B&G will raise its dividend in 2017. The company had earnings-per-share and dividends of $1.22 in 2016, equating to a dividend payout ratio of 100%. With such a huge amount of debt to service, and a growth strategy reliant upon acquisitions, B&G’s dividend increases will be harder to predict.

Final Thoughts

B&G has a higher dividend yield than PepsiCo, but in this case, a higher dividend yield isn’t enough. Food and beverage stocks should be bought for consistency, in addition to their dividend yields. PepsiCo has a much stronger brand portfolio, and has a better balance sheet. Its dividend is virtually guaranteed to rise each year, while B&G’s dividend has more risk built into it. As a result, investors should resist the temptation to buy B&G stock, just because it has a higher dividend yield.

• To see how PepsiCo’s dividend compares with its No. 1 competitor Coca-Cola (KO), click here.