High stock prices sound great if you already own the stock, but they can be off-putting if you are looking to buy it. Still, all pricing on the market is relative and what some might consider a cheap stock, others might consider to be expensive (and vice versa). For some, stocks priced about $100 a share are considered expensive. Fortunately, you can still buy shares of great companies for $100, or even less, if you know where to look.
Two stocks priced under $100 a share that have the potential to eventually exceed $100 are iconic soda maker Coca-Cola (KO 0.68%) and spice producer McCormick (MKC 0.59%). And even if they don't eventually rise above $100 a share, they pay you a decent amount to hold on to them. Here's more about why both should be of interest to you.
This too shall pass
Both Coca-Cola and McCormick hail from the consumer staples sector, with one focused on drinks and the other centered around spices and other food flavor enhancers. Both are leading names in the sectors they serve. However, neither one is immune to the adverse effects of inflation. As the price of ingredients, labor, and transportation goes up, profit margins can get squeezed.
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Inflation is not a new phenomenon; these companies have dealt with rising costs before. Their playbook is pretty simple: Cut costs and increase prices. There's usually a lag between when margins feel pressure and when price hikes flow through to consumers, but eventually, it all works out in the end. Essentially, short-term thinking likely has investors overly concerned about the long-term future of these two industry-leading companies.
Rising inflation has investors worried about these two stocks, with Coca-Cola trading down around 15% from its highs earlier this year and McCormick off by a much larger 30% or so. The drops put the price points for both stocks well below $100 a share. And, for those with an income focus, their dividend yields are toward the high side of the range they've maintained over the past decade. That suggests that neither company has been trading this cheaply for a long time.
A closer look at the dividend
Coca-Cola's dividend yield is the more attractive of the two on an absolute basis, at 3.2%. McCormick's yield is roughly 2%. But the more interesting figures here are found in the dividend growth streaks and the actual dividend growth rate.
Coca-Cola's dividend increased annually for over 50 years straight, making it a highly elite Dividend King. The dividend growth rate over the past decade was nearly 6% a year. That's a nice combination of dividend growth and income.
McCormick's dividend, meanwhile, has been hiked each year for over 30 years straight, making it a Dividend Aristocrat. The rate of growth over the past decade was a heady 9%. That puts it soundly in the dividend growth camp.
Of the two, McCormick is the faster-growing stock of late, turning a $10,000 investment into roughly $24,000 over the past decade (not including dividends). Coca-Cola's performance has been far more modest, increasing a $10,000 investment to just under $15,000 over the same span. However, for conservative investors looking for a mix of dividend income and growth, that's probably a fair trade-off, noting that the drawdowns in Coca-Cola's shares tend to be less severe.
Warts and all
No company is perfect, so go in knowing that Coca-Cola probably won't be an exciting stock to own -- it's more of a slow-and-steady performer. And yet, even after decades at the head of the soda sector, it still manages to find new ways to grow its business, most recently including a sizable push into the coffee niche. McCormick has a bit more flair, but that comes with added volatility.
Meanwhile, both stocks are available for less than $100 a share at the moment, despite their industry-leading positions and iconic histories. If you can think past the current high inflation rates, both are worth a deep dive.
