The Coca-Cola Cash Cow

Coca-Cola (NYSE: KO) owns the best-selling soft drink as well as the best-known product in the world. MBAs look at the company and lovingly call it a cash cow.

Coke's first-quarter results, while awash in cash, saw little growth. Worldwide unit case volume growth was ahead 3%. Year-over-year earnings fell from $0.46 to $0.42 a share, but if you back out a number of one-time events, earnings were even.

Why own such a slow-moving behemoth, where future growth will be in measured steps instead of massive strides? Start by looking at the balance sheet.

Last quarter the company had $410 million more debt than cash. Now there is $23 million more cash than debt. For comparison, competitors PepsiCo (NYSE: PEP) and Cadbury Schweppes (NYSE: CSG) have more debt than cash. That gilded edge on Coke's ledger is the stuff that makes for sound sleep.

Don't think that owning well-known market leaders is a guarantee they are awash in cash. Anheuser-Busch (NYSE: BUD), the king of beers, has roughly $8 billion more debt than cash. Food giant Kraft (NYSE: KFT) tips the scale at around $12 billion, and cigarette baron Altria (NYSE: MO) tops this short list at about $17 billion.

Of course, as much as I love cash, I'll be the first to admit that debt isn't the devil -- at least not always -- and when sizing up a business' overall situation, its debt balance needs to be considered relative to the money it's bringing in.

Which brings me to my next point, actually: While having a cash cow is good, you really want one that (excuse the mixed metaphor) brings home the bacon consistently. How's this for consistency: For 43 consecutive years, Coke has increased its dividend. The latest 12% increase allows the stock to yield 2.6%.

Analysts are forecasting the company will earn $2.24 per share in 2006, 8.7% above their $2.06 estimate for this current year -- an estimate that is, in turn, 3% better than Coke's $2.00 EPS from 2004. The 2006 figure prices the stock at roughly 19 times forward earnings. You might also consider the fact that dividends should be increasing along the way, effectively increasing your total return.

Also remember that the company is truly international. The U.S. is 30% of total sales with operating margins of 19.7%. Asia rings up 21.0% of sales and has 36.6% operating margins. So, while the economy may be blowing cold at home, sunnier times in other regions of the globe will keep the cash cow well-fed -- and at higher margins.

Two more reasons to give Coke a look-see: First, financial giant Warren Buffett's Berkshire Hathaway (NYSE: BRKa) owns 8.3% of the outstanding stock (that's $8.3 billion greenbacks). Second, those green-eyeshade, value-focused analysts at the Motley Fool Inside Value newsletter recommended Coke in January.

While running with the bulls is popular in Pamplona, Spain, running with cash cows like Coca-Cola is always in vogue on Wall Street. Given Coke's strengths, and the shares having fallen 22% from where they were 52 weeks ago, I'd say the stock is poised to beat the overall total market return in the coming years.

Fool contributor W.D. Crotty owns shares of Berkshire Hathaway and PepsiCo. Click here to see The Motley Fool's disclosure policy.