Despite healthy rallies in the stock market's top indexes this year, not all stocks have kept up. Consider mighty beverage giant Coca-Cola (KO), which has seen its shares trend in the opposite direction, down around 3% so far in 2023. Yet, the soda giant has stood the test of time and provided great long-term value, so investors should be far from worried.
Let's consider three reasons why Coca-Cola's share could be a savvy buy for investors right now.
1. Coca-Cola's profitability remains strong
There's no disputing that Coca-Cola has rock-solid financials. In the second quarter, the soda king made $12 billion in revenue, up 6% year over year. Non-GAAP organic revenue -- which excludes the impacts of acquisitions, divestitures, and foreign exchange-rate changes -- increased 11% year over year.
More impressive is the company's profitability, which continues to lead the way in its industry. Coca-Cola's Q2 gross profit margin was 59%. For perspective, PepsiCo, with revenue that's almost double Coca-Cola's, had a gross profit margin of around 54.6% in Q2. When you're dealing with 11-digit revenue figures, a 5.4% difference in gross profit margin adds up.
A huge testament to Coca-Cola's business is the fact that despite PepsiCo's huge revenue advantage, the former routinely makes more cash from operations.
Data by YCharts.
2. It's a shareholder-friendly company
A key reason investors gravitate to Coca-Cola is its shareholder-friendly nature. To begin, its dividend is $0.46 quarterly per share, which equals a yield of just over 3%. That's about double the S&P 500 average.
Perhaps even more crucial than its current dividend is that it's increased its annual dividend for 61 straight years, giving it the heralded title of Dividend King. It's unlikely this will stop in the foreseeable future, either.
In addition to Coca-Cola's $12.5 billion in cash and cash equivalents, its free cash flow was just under $9.5 billion in Q2. That's around $2.18 in free cash flow per share, well below its dividend obligations. When it comes to dividend safety, there are few companies I'd put above Coca-Cola.
The company also has a history of share buybacks, which boosts its earnings per share and increases the value of shares owned by investors. The company authorized the repurchase of 150 million shares in 2019 and has bought around $725 million worth of stock through June of this year.
Data by YCharts.
3. It has a knack for staying with the times
Take any product in any industry, rank them based on the chance that they'll sell for the next century, and it's safe to say that Coca-Cola's flagship soda should be one of the top choices on anybody's list. That's generally understood.
However, Coca-Cola has shown that although it has its staples, it's willing to keep up with the changing beverage landscape and consumer preferences by aggressively entering new categories. Even its entrance into alcohol, a category it's historically avoided, came as a surprise to many.
In 2018, Coca-Cola launched its first ready-to-drink (RTD) alcoholic beverage in Japan called Lemon-Dou. Today, its RTD alcohol offerings include Topo-Chico hard seltzer, Simply Spiked, Fresca Mixed, and a pre-made Jack Daniel's and Coca-Cola.
It helps that Coca-Cola's bank account allows it to quickly enter categories via acquisitions, and the company hasn't shied away from doing so. Fairlife, BodyArmor, and Glaceau are a few examples of acquisitions Coca-Cola made that have positioned it well in the respective categories of these drinks.
Past success is good, but the ability to adapt and stay with the times helps ensure longevity.
