Coca-Cola’s stock, identified with the ticker symbol KO, has recently outperformed the market, an infrequent occurrence over the past three decades. In the current year, Coca-Cola’s stock has risen by 12%, contrasting with the S&P 500’s decline of 4%. Here are three fundamental reasons why Coca-Cola is considered a valuable addition to an investment portfolio.
1. Safety and Stability
In recent weeks, the market has faced correction-like conditions as economic uncertainties arise due to new tariffs and potential recession talks. During such times, investors tend to move away from risky stocks to more secure investments. Coca-Cola, a well-established company with a strong track record, is perceived as a safe investment. The company consistently generates revenue due to the constant demand for its products. While Coca-Cola may not have consistently beaten the market, it provides a reliable investment option that offers stability and can protect portfolios during market downturns. It is advised that even growth-focused investors allocate a portion of their funds to secure stocks like Coca-Cola.
2. Opportunities for Growth
Many mature and stable companies tend to grow slowly, offering stability rather than rapid growth. However, Coca-Cola presents opportunities for expansion, giving investors confidence in its future prospects. Despite economic pressures and inflation last year, the company’s unit case volume increased by 1%, revenues rose by 3%, and organic revenue grew by 12%. Although there were mixed results, with a 7% increase in comparable earnings per share and a 51% decrease in free cash flow, investors continue to view Coca-Cola positively. The company holds 28% of the global market value in non-alcoholic, ready-to-drink beverages, an increase from 26% a decade ago. Coca-Cola sees significant potential to capture additional market share, particularly in non-developed global regions, alongside expected industry growth of about 4% annually.
3. Attractive Dividend
Coca-Cola’s dividend is an integral part of its business appeal. As a Dividend King, the company is committed to maintaining and enhancing its dividend. Recently, Coca-Cola announced its 63rd consecutive annual quarterly dividend increase, raising it by 5.2% from $0.49 to $0.52, resulting in an annual dividend of $2.04 per share. This increase has occurred annually since 1962, marking one of the strongest dividend track records in the market. While many Dividend Kings offer reliability, Coca-Cola’s dividend is notable for its combination of reliability, growth, and yield. Despite a current yield of 2.8%, which is lower than average due to the stock’s price rise, it remains more than double the S&P 500’s average yield of 1.3%. As an anchor stock for a diversified portfolio, Coca-Cola provides security and passive income in various market conditions.
