Declining stock prices can often set the stage for higher returns for investors. That's especially true for dividend stocks, whose yields rise in concert with the falling prices.
But investors should still be picky about which companies they choose to buy, as Wall Street often has good reasons to be pessimistic about a given business.
That's not the case with either Coca-Cola (KO) or Procter & Gamble (PG -0.78%), though. These two stocks have declined slightly in 2023 even though the Dow Jones Industrial Average is up on the year.
Let's look at a few compelling reasons to consider that drop as a buying opportunity.
Procter & Gamble is looking up
Procter & Gamble's recent streak of weak sales volumes has been the big knock against the company's stock. After several years of booming results, this key metric turned negative starting in late 2022 and has remained in the red through early 2023.
Consumers are reacting to rising prices and slowing economic growth, partly by reducing spending on premium essentials such as paper towels and laundry detergent.
This is still a formidable business, however. P&G posted a 7% organic sales increase in the most recent quarter with help from a 10% increase in prices. Management raised its sales and cash return outlook for fiscal 2023 as well.
P&G's April dividend increase marked its 67th consecutive annual hike, marking one of the longest such steaks on the market.
P&G's late July earnings update will likely show more financial strength along these lines. There's also a good chance that profit margin might even start marching back toward record highs thanks to those higher prices and slowing cost inflation.
Look for these trends to help this blue chip stock recover from its mid-2023 slump.
Coca-Cola has bubbly profits
Coca-Cola gave investors plenty of reasons to celebrate in its last quarterly update. The beverage giant said in late April that organic sales grew by a blazing 12%, thanks to the combination of rising volumes and increased prices.
Non-GAAP (adjusted) profit margin expanded slightly, too, in contrast with many smaller peers that are struggling to pass along higher prices to consumers.
Coke's pricing power is unquestioned, though, and is reflected in its over 30% profit margin. Compare that to National Beverage's 16% rate to see the value in having a dominant market position in a massive global industry.
KO Operating Margin (TTM) data by YCharts
Despite those obvious assets, Coke's stock has gone nowhere so far in 2023. The good news is this underperformance has kept its dividend yield at a generous 3%, providing a nice bonus of immediate income for investors who choose to hold this stock over the long term.
Coke has a good shot at expanding sales over the next few years, in part by pushing into high-growth niches like sparkling sodas and energy drinks. Its market-leading profit margin and cash-flow metrics will amplify those gains.
As a result, investors shouldn't expect the stock to remain in the doldrums for too much longer. Coke, and Procter & Gamble, will be back.
